Since the reform and opening up more than thirty years ago, China's industrial level has achieved a qualitative leap, but the adverse effects of economic development on environmental destruction have become increasingly prominent, and environmental issues are becoming a major obstacle to China's sustainable development. In recent years, the government has successively introduced measures to control energy conservation and emissions reduction, and support environmental protection enterprises. As a traditional chemical industry, the paint industry naturally cannot avoid this.
Starting from February 1, 2015, the state began to levy a 4% consumption tax on paint enterprises, and it is currently not ruled out that the tax rate may be increased or the scope of collection expanded in the future.
According to China Paint Procurement Network, in this adjustment of the paint consumption tax, solvent-based paints are the first to be affected. The new policy stipulates that taxes will be levied on the production, commissioned processing, and import links of paints, and the volatile organic compound (VOC) content of paints in a construction state will be measured. If the VOC content of paint products in a construction state is below 420g/L (inclusive), the consumption tax on paint can be exempted. Units that meet the exemption conditions must provide authoritative testing certificates when declaring. In addition, since water-based paints, powder coatings, and other products already have VOC content below this collection standard, they are also exempt.
Industry insiders told China Paint Procurement Network that the new consumption tax policy is like making a cake with fine flour—good-looking but not tasty. The standard of VOC content ≤ 420 grams/liter is difficult to achieve at the current profit level of the industry, and the exemption for water-based paints, powder coatings, and other products is not particularly significant.
In today's paint market, product quality is uneven, counterfeit and inferior products are rampant, and there is vicious competition among enterprises. Especially due to the low entry threshold of the paint industry, the influx of many small manufacturers has made the paint market a mess. The performance of the paint market in recent years has also been unsatisfactory. At this moment, the introduction of the paint consumption tax may indeed be the government's intention to integrate the industry, but in such a sluggish economic environment, relying on simple taxation seems to have little effect on regulating the industry.
On March 5, 2009, a U.S. congressman proposed to levy a consumption tax on paint, which immediately caused a stir in the United States. The Diamond Paint Company, headquartered in Iowa, along with five of the largest paint companies in the U.S., including PPG, Sherwin-Williams, Valspar, and DuPont, submitted a statement to Congress opposing the imposition of a paint consumption tax, claiming to have the support of 55 members of the National Paint and Coatings Association (NPCA). Their basic argument was: "It is really unacceptable to tax us in such a fragile economic environment; paint is not a luxury item."
It is not difficult to guess that once a product is subject to a 4% consumption tax, it means an increase in production costs for paint enterprises. To ensure that the original profit margin is not compressed, apart from reducing costs such as raw materials and labor through technological innovation, the only option in the short term is to raise prices.
Compared to American companies that dare to be so disobedient, domestic paint enterprises are much "more honest" and do not dare to openly defy orders. Instead, they take a different approach: if you impose taxes, I will raise prices and pass the tax burden onto consumers; there will always be someone willing to pay. As expected, shortly after the Ministry of Finance and the State Administration of Taxation jointly issued the consumption tax collection document on January 26, a paint company in Zhejiang issued a price increase notice, passing the consumption tax onto distributors. The distributors appeared even more calm; they are the middlemen, buying high and selling high, and regardless of how the company adjusts prices, they only need to maintain a certain profit margin.
For many years, similar price increase events have been common in various industries. In fact, for product price increases, enterprises themselves are also forced to do so.
According to calculations by China Paint Procurement Network, enterprises must first calculate the taxable price, that is, (cost + profit) ÷ (1 - consumption tax rate), and then multiply the result by the applicable tax rate to calculate the tax payable. For example, if the total cost of a set of paints is 100 yuan, and the enterprise wants to ensure a 10% profit, under the condition of no consumption tax, the selling price should be 110 yuan; after the tax is implemented, the selling price should be (100 + 10) ÷ (1 - 4%), which equals 114.58 yuan, and the tax payable is 4.58 yuan.
It can be seen that if the enterprise does not raise prices, profits will decline. For example, for a paint product priced at 110 yuan, with a total cost of 100 yuan, the tax payable is 4.4 yuan (110 yuan × 4%), so the final profit obtained is 5.6 yuan, with a profit margin of 5.6%, which is a decrease of 4.4% from the original profit margin of 10%. Based on the average profit margin of 5%-10% for the entire industry, the profit space of enterprises faces significant shrinkage.
I believe that the government's imposition of a paint consumption tax, with specific limits on VOC content, will lead the paint industry to develop towards low VOC and high added value. Therefore, the price increase of paint products may indeed be a way for paint enterprises to transfer the crisis, but it is not the best way for enterprises to achieve substantial development. As the saying goes, "A blessing in disguise," the paint industry should firmly grasp this adjustment of consumption tax, be strict with itself, combine with the actual development of enterprises, develop high value-added products, and innovate management models. Only in this way can it stand invincible in the future!
