2019 Magic Show

during the CNYholiday ,DADI sales team attached 2019 MAGIC clothing and sourcing  show in Las vegas ,DADI's products and service is warmly welcome by US customers .in word of one of them ,its not bad at all .


Whats the influence of Deducted Value-Added Tax on Selling Price?

 

From 1st Apr. 2019, China will deduct its value-added tax from current rate 16% to 13% and from current rate 10% to 9%. In those business which current VAT rate is 6%, the rate will be kept.

At this point, many customers require suppliers to do following two things:1) Issue VAT invoice before 1st Apr. So they still have 16% input VAT invoice to be credited. 2) Require price deduction. Many customers asks suppliers to deduct 3% or calculate new prices with following formula: New price=Original price/1.16*1.13.

So are these requirements reasonable?

First, requirement 1) is reasonable. Because any company must at least keep the input and output VAT in the same system or they or their customers will lose money.

However, the second one is not quite reasonable. Assuming that a products price is 10RMB and margin is 10%. The VAT a company actually needs to pay before the rate deduction is (10-9)/1.16*0.16=0.14RMB. After the VAT deducted, it comes to (10-9)/1.13*0.13=0.115RMB, which means 0.025RMB saving.

However, if customer requires 3% deduct in price, it means reducing 0.3RMB.

On the other hand, if calculate new price as the formula, it means reducing 10-10/1.16*1.13=0.26RMB.

Either of these two ways of calculating new price asks far more than tax saving.

If other cost keeps the same, agreeing with customer of the price deduct causes problems. 

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