Value-added tax will be reduced starting next month. Will photovoltaic inverters be expected to fall in price?

On March 5, 2019, the Prime Minister proposed in his work report:

The current 16% tax rate for manufacturing and other industries will be reduced to 13%; the current 10% tax rate for transportation, construction and other industries will be reduced to 9%; and the 6% tax rate will remain unchanged.

Photovoltaic inverters are a manufacturing industry. From April 1, 2019, the tax rate will be reduced from the current 16% to 13%. So what impact will this tax reduction have on the cost of photovoltaic inverters? Will the price of inverters drop?

First of all, let us understand what value-added tax is?

Value-added tax is a tax levied on the value-added amount realized by units and individuals that sell goods or provide processing, repair and maintenance services or import goods. The tax deduction method adopted is to deduct the input tax from the sales amount of the goods sold, and the difference is the tax payable on the value-added part.

Tax amount = (sales price - input tax) * 13%.

The era of huge profits on inverter prices has passed. Huawei and Sungrow are now large in scale, with low purchase prices, and can control sales prices. Their gross profit margins are around 40%, while other companies' gross profit margins are around 30%.

For example, if a 40kW inverter sells for 10,000 yuan and the tax rate drops from 16% to 13%, we can calculate how much the cost can be reduced.

Huawei and Sunshine have a gross profit margin of 40%, with an input of 6,000 yuan and a tax of 4,000 yuan.

16% tax: 4000*16%=640 yuan

13% tax: 4000*13%=520 yuan

In total, you can save 120 yuan in tax.

Other companies calculate based on a gross profit of 30%, with input of 7,000 yuan and tax of 3,000 yuan

16% tax: 3000*16%=480 yuan

13% tax: 3000*13%=390 yuan

In total, you can save 90 yuan in tax.

In summary, after the implementation of the new tax rate, an inverter priced at 10,000 yuan can pay about 100 yuan less in taxes. In Shenzhen, high-tech enterprises can pay taxes and get some back through various government subsidies such as R&D additional deductions. Therefore, the overall cost reduction is less than 1%, so don't expect too much from the price reduction of inverters.