Effective October 1st, China will fully implement new export compliance policies, completely ending the "Export without VAT (Non-Compliant VAT Export)" model. This change will significantly impact the supply chain stability and procurement risks of global buyers. Are you aware of the core changes in the new regulations? How can you screen suppliers and ensure the security of your supply chain? This article provides an in-depth analysis.
Background
Since the elimination of most export tax rebates for steel products in 2021, some exporters have resorted to "export without VAT" practices, using the 13% VAT they evaded as a "subsidy" to gain an unfair low-price advantage. This situation has become particularly severe since the end of 2022, contributing to China's steel exports reaching a seven-year high of 90.264 million tons in 2023.
In April 2024, the Qingdao Taxation Bureau announced a penalty case in which a company was required to pay nearly 10 million yuan in back taxes for exporting steel without VAT. This was a clear signal of the impending industry reshuffle.
Why is "Export without VAT (pay-for-export)" no longer possible?
The core of this reform stems from the closed regulatory loop created by two key policies, which were gradually implemented by 2025 and completely closed all loopholes:
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Announcement No. 8: Starting with export access, it ensures that only companies with normal tax status can declare goods. Effective March 25, this policy established a pre-export tax registration confirmation mechanism. Any company with an irregular tax status will be unable to declare goods through customs.
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Announcement No. 17: Strengthening subsequent supervision, a full-chain information traceability mechanism will be established. New regulations issued on July 7 stipulate that starting October 1, 2025, export agents must report the true owner of the goods. Otherwise, the agent will bear the full tax liability. This "reverse responsibility" mechanism compels the entire logistics chain to refuse to serve non-compliant export businesses.
"Prior access" plus "post-transaction tracing" means that the previous model of separating goods, invoices, and payments is no longer possible, completely dismantling the foundation of the "Export without VAT" model.
Market Impact: A shake-up affecting both buyers and sellers
For global buyers, working with non-compliant suppliers may expose you to three major risks:
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Delivery Interruption Risk: Your supplier may be forced to halt operations at any time due to an audit, resulting in order delays or even non-delivery, severely impacting your production plans.
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Prepayment Loss Risk: This is the most direct financial threat. If a supplier faces a survival crisis due to back taxes and fines, your prepayment is at great risk of being completely lost.
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Price and Supply Instability Risk: Suppliers who rely on "export without VAT" (pay-for-export) lose their illegal "cost advantage" and are forced to either significantly raise prices or take risks. Either option will create significant uncertainty for your supply chain. At the same time, a shake-up has begun on the exporter side. We've recently learned that some of our peers, who previously relied heavily on "pay-for-export," have seen their business stagnate or even disappear. This demonstrates a harsh reality in the market: non-compliant suppliers are rapidly being forced out of the market.
SMLSCO: A Safe Choice in the New Era of Compliance
SMLSCO has always operated in full compliance, possessing all export qualifications and a standardized tax system. We understand that a healthy market cannot be built on illegal operations.
As the market returns to fairness and compliance, our prices, which consistently include compliance costs, stable quality, and fast delivery, are more competitive today than ever before.
If you're looking for a stable and reliable supply partner to protect your supply chain, we invite you to speak with us about how SMLSCO can safeguard your business.
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