Analysis of Key Challenges in Processing Trade Manual Cancellation: Calculation Formula for Domestic Sales Tax Supplement on Scrap Materials

Analysis of Key Challenges in Processing Trade Manual Cancellation: Calculation Formula for Domestic Sales Tax Supplement on Scrap Materials

I. Key Challenges in Scrap Material Management During Processing Trade Manual Cancellation

1. Definition and Classification Disputes
   Scrap materials refer to residual materials generated during processing that cannot be used for the original product (e.g., fabric scraps, metal waste). The challenge lies in distinguishing between “scrap materials,” “defective products,” and “by-products,” as different classifications directly impact tax treatment.
2. Data Reconciliation Issues
   Enterprises must declare the actual output of scrap materials during manual cancellation. However, discrepancies often arise due to fluctuations in production loss rates and measurement errors, leading to customs scrutiny.
3. Complex Domestic Sales Approval Process
   Domestic sales of scrap materials require customs approval and involve coordination with multiple departments (e.g., environmental protection, taxation). Poor planning of cancellation timelines may result in manual expiration risks.

II. Policy Basis for Tax Supplement on Domestic Sales of Scrap Materials

1. Legal Foundation
   According to Article 56 of the Customs Law of the People’s Republic of China and the Processing Trade Goods Supervision Measures, domestic sales of scrap materials must be taxed based on the declared status, applying the latest tax rates at the time of domestic sale.
2. Principles for Determining Taxable Value
   • Priority is given to the actual sales price.
   • If no sales price exists or the price is abnormally low, customs will determine the value based on market price or a composite taxable price:Composite Taxable Price=Original Import Price of Materials×Scrap Material Ratio1−Consumption Tax RateComposite Taxable Price=1−Consumption Tax RateOriginal Import Price of Materials×Scrap Material Ratio​The “scrap material ratio” is derived from the production loss rate.

III. Detailed Explanation of Tax Supplement Calculation Formula (Core Section)

1. Basic Formula FrameworkTax Supplement Amount=Taxable Value×Quantity×(Import Tariff Rate+Value-Added Tax Rate)Tax Supplement Amount=Taxable Value×Quantity×(Import Tariff Rate+Value-Added Tax Rate)Note: Consumption tax, if applicable, must be added.
2. Key Parameter Acquisition
   • Quantity: Determined by customs-approved actual domestic sales weight/volume.
   • Tax Rates: Import tariffs apply the original material import rate; VAT uses the domestic sales rate (e.g., current 13%).
   • Exchange Rate: Based on the central parity rate on the customs declaration date.
3. Case Demonstration
   A company imports plastic pellets, generating 1,000 kg of scrap material. Original import price: $1.2/kg; tariff rate: 5%; VAT: 13%; no consumption tax:Tax Supplement=1.2×6.8(Exchange Rate)×1,000×(5%+13%)=RMB 1,468.8Tax Supplement=1.2×6.8(Exchange Rate)×1,000×(5%+13%)=RMB 1,468.8

IV. Practical Operation Recommendations

1. Preemptive Consumption Management
   Declare reasonable loss rates during manual registration to avoid abnormal scrap material fluctuations during cancellation.
2. Dynamic Monitoring System
   Maintain a scrap material production ledger and regularly compare it with theoretical manual values. Discrepancies exceeding 5% require proactive explanation.
3. Compliance Risk Mitigation
   • Unauthorized disposal of scrap materials is prohibited.
   • Domestic sales prices must align with industry fair value to avoid customs valuation disputes.

V. Future Policy Trends

Starting in 2024, the General Administration of Customs will advance the “Smart Cancellation” system, utilizing IoT technology to automatically collect scrap material data. Enterprises must adapt to digitalized regulatory requirements.