What is the significance of canceling export tax rebates for photovoltaic and other products starting April 1, 2026?

The Ministry of Finance and the State Taxation Administration issued an announcement that, effective April 1, 2026, export VAT rebates for photovoltaic and other products will be cancelled. This decision warrants in-depth discussion regarding its underlying reasons and impact. China has implemented a policy of exempting or refunding VAT on exported products for decades. Its starting point is to reduce the export costs of domestic products and enhance their competitiveness in the international market. In the early stages of China’s industrialization, this policy was highly effective, helping many enterprises to export their products and expand into international markets. Taking product A as an example, the average international market price is 100 yuan, and the domestic enterprise’s ex-factory price (including tax) for this product is also 100 yuan. If exported, with freight and import duties, the customer’s final price would be at least 110 yuan, making it difficult for the product to find a market in the international market. After implementing tax refunds or exemptions, exporting companies can price their products at 88 yuan. Adding freight and tariffs, the final price for overseas customers is 98 yuan, significantly enhancing product competitiveness. Tax exemptions or refunds for exported products are a globally common practice. However, today, China’s industry has developed rapidly, and its manufacturing sector is among the world’s leading. In many sectors, production efficiency has increased significantly, production costs are far lower than in other countries, and foreign trade exports and surpluses have increased substantially. However, trade frictions have also increased. Importing countries have continuously raised tariffs on Chinese products; the trade war initiated by the United States is a typical example. During Trump’s first term, a 25% tariff was imposed on Chinese products, but this did not stop Chinese exports to the US. Even after Trump launched another tariff war last year, many Chinese products still have a price advantage, with some products having an advantage of over 50% or even 100%. However, the benefits of our export tax refunds or exemptions are far less than the tariffs imposed by importing countries. It’s equivalent to the importing country’s government reaping the benefits of our government’s tariff reductions, without benefiting customers; in fact, product prices are higher. From the perspective of domestic enterprises, the national export tax rebate policy has not fully benefited them. Due to the large number of domestic manufacturers, companies have been willing to offer concessions, including export tax rebates, to compete for export share. Many export companies operate on meager profits, or even struggle to survive, accepting export orders only to stay afloat. Since the export tax rebate policy has failed to benefit domestic enterprises and has even led to lower export prices due to competition, resulting in foreign trade sanctions, the proactive cancellation of export tax rebates for some products is somewhat reasonable. At least the government can gain some revenue from exported products. Take photovoltaic products as an example: China has a significant advantage, accounting for 90% of global production capacity. After the tax rebate is cancelled, China’s export prices will increase by 13%. Foreign countries wanting to develop their photovoltaic industries will still need to purchase from China, but at a higher cost. The cancellation of export tax rebates for photovoltaic products is believed to be just the beginning, and more products will likely have their export tax rebates cancelled in the future. This policy adjustment is a measure to adapt to changes in the international and domestic situation and will have a profound impact on China’s foreign trade landscape.