The removal of export VAT rebates is more than a “13% adjustment”
Starting April 1, 2026, China will cancel export VAT rebates for certain products, including nicotine-containing, non-combustible inhalation products.
On paper, this appears to be a simple tax adjustment. But within the vape industry, its impact goes far beyond accounting figures. What it truly affects is manufacturers’ cash flow and pricing mechanisms at the most fundamental level.
For most Chinese vape OEM factories, the 13% export VAT rebate was never “extra profit.” It functioned as a critical buffer to offset daily operating costs. With OEM margins long compressed to around 10%, the removal of this rebate directly undermines the cost structure of many factories.
Following the policy announcement, the industry’s first reaction was not to wait and see, but to calculate one key question:
Who will ultimately bear this missing cost?
Where the cost ultimately flows after the rebate is removed
Clearly, this cost will not be absorbed by a single party. Instead, it will be redistributed across the entire supply chain.
Relevant studies suggest that when export VAT rebates are reduced or eliminated, approximately 47% of the cost is passed on to overseas wholesalers and distributors through higher ex-factory or procurement prices. The remaining 53% is absorbed by domestic manufacturers, further compressing already limited profit margins.
For overseas wholesalers, this leads to two immediate realities:
• The procurement baseline will rise across the board
Price negotiations will no longer focus on whether prices increase, but on how much and in what way.
• Differences in supplier stability will become more visible
When price is no longer the sole differentiator, factors such as delivery reliability, product consistency, and operational discipline become decisive.
Supply chain risk: why not every supplier can simply “raise prices”
In theory, raising prices seems like the most direct solution. In practice, not every manufacturer has the ability to do so.
Whether a factory can realistically absorb cost pressure depends on several hard realities:
product differentiation, historical delivery performance, and whether its supply chain is built on a solid compliance foundation.
Manufacturers lacking these capabilities may choose more dangerous survival strategies—cutting raw material costs, switching to cheaper suppliers, or compromising quality control standards. These short-term decisions inevitably surface as delayed shipments, batch inconsistencies, or compliance risks, all of which are ultimately borne by wholesalers.
Why “certainty” matters more than price
Feedback from global distribution channels shows that price increases are already widely accepted. What truly concerns overseas buyers is not the increase itself, but uncertainty about what comes next.
• Will prices continue to rise?
• Will suppliers suddenly fail to deliver?
• Will products be pulled from the market due to compliance issues?
In high-tax markets, local taxation combined with rising export costs has already led to sharp increases in retail prices. As vaping’s traditional “value-for-money advantage” weakens, channel partners become far more pragmatic in how they evaluate suppliers: fewer fluctuations, fewer surprises, fewer risks.
As a result, more overseas buyers are reassessing their partnerships. The selection criteria are shifting from “lowest price” to “most reliable long-term partner.”
SP2S perspective: policy changes are filtering for long-term partners
As an integrated brand and manufacturing enterprise, we see this export rebate adjustment not as an endpoint for the industry, but as a structural filter.
Business models that relied heavily on policy buffers will become increasingly difficult to sustain under the new cost environment. Going forward, success will depend less on expansion speed and more on three core capabilities:
1. Compliant export capability: the foundation for navigating policy cycles
Consistent and stable compliance is the only real passport in an environment of tightening global regulation.
2. Stable cost control and cash flow management
This determines whether a company can remain operationally resilient during cost fluctuations, rather than passing pressure and risk onto its partners.
3. Product and delivery consistency amid price changes
The ability to deliver on time with consistent quality—regardless of external conditions—is the cornerstone of long-term trust.
SP2S does not compete on a single price advantage. Instead, we invest long-term in R&D, product stability, and compliance systems. We operate independent product development and testing teams covering structural design, flavor development, battery safety, and consistency validation—ensuring each product generation is controllable, repeatable, and reliable in performance and quality.
In practice, we approach partnerships from the perspective of long-term wholesaler and channel sustainability. Our support extends beyond fulfilling orders to include product roadmap discussions, compliance documentation preparation, market feedback iteration, and stable delivery planning.
As the industry enters a more rational phase, we believe sustainable R&D capability, clearly defined technical boundaries, and a responsible attitude toward partners matter far more than short-term pricing.
From single-order cost decisions to long-term supply chain choices
The cancellation of export VAT rebates will not overturn the market overnight, but it is fundamentally reshaping how value is judged across the industry.
For every wholesaler's buyer, the key question is no longer: “Is this order priced cheaply enough?”
It is now: “Over the next two to three years, is this supply chain stable enough to grow with me?”
That is the most profound change this policy adjustment brings.
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