China ‘VAT’ Syndrome – Uncertainty for International Forwarders

August 27, 2013 — 3 Comments

VAT-TAXGreg Knowler, of maritimeprofessional.com reports, “Whenever there is uncertainty in a particular trade, the container lines resolutely stick with the “shipper pays” principle. That’s understandable considering the state of the industry, but not exactly fair on their customers”.

For the last couple of decades shippers have been complaining that the host of extras they are charged – more than 100, according to the HK Shippers’ Council – should be built into the freight rates that are negotiated between them and the lines.

From this month [August 2013] there will be another charge levied – a six percent VAT charge on top of all charges payable in China, according to Lloyd’s List. Many of the major carriers have informed their customers, but the news has not been received with much enthusiasm.

China is changing its tax system from a turnover tax on companies’ gross revenue to a VAT, which is levied on the difference between a commodity’s pre-tax price and its cost of production.

Beijing rolled out a VAT pilot programme to test the market and iron out the bumps, starting in Shanghai in January last year. In September Beijing was included followed by a gradual nationwide rollout before the new system kicks in tomorrow.

But there is still major uncertainty in this new tax regime, and that is providing great consternation for shippers and the carriers. International shipping is not liable for VAT, so why should carriers impose a six percent VAT levy on customers, asks Sunny Ho of the HK Shippers’ Council.

The problem is that international container lines are not sure whether they are exempt from VAT or not. All the carriers have China offices and as that is where the billing of mainland shippers originates, so they fear Beijing may treat them as agents instead of international shipping services, which means their business will be eligible for the tax.

Maersk Line has decided to wait until mid-August before levying the six percent VAT on mainland charges to see how the situation unfolds. That is a welcome gesture and one that should be followed by all the international shipping lines.

With so much uncertainty surrounding the nationwide rollout of the new tax regime, how can carriers justify slapping customers with a VAT levy before the actual impact of that VAT can be measured?

It is a grasping approach that the lines instinctively default to when faced with the possibility of rising costs. It may serve to protect the bottom line, but it continues to reinforce the traditional unhealthy and antagonistic relationship between them and their customers.

The lines should wait until the costs of China’s VAT have been established and those costs should then be built into the freight rates. Surely that is the only reasonable approach. Source: www.maritimeprofessional.com

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3 responses to China ‘VAT’ Syndrome – Uncertainty for International Forwarders

  1. 

    I suggest the author of this blog as either misinterpreted the China VAT story or has not expressed very clearly their opinion on it. Let me explain my comment
    “In accordance with the new circular 37 of Cai Shui (2013) on “Tax Policy of VAT Pilot Program on Transportation & Modern Services Sector”, jointly issued by the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) of PRC on 24 May 2013, the related VAT tax policy will be expanded nationwide with effect from 1 August 2013, having a direct impact on the taxation of invoices for export and import related services.”
    This new VAT policy is applicable to services rendered and charged for in China (Mainland) only and is considered as a local China tax.
    Key Points to understanding the change:
    • The Chinese government will introduce a new export tax for all shipments departing on or after the 1st of August 2013.
    • The Tax of 6% will apply to the Ocean Freight charges if the Ocean Freight is PREPAID in China.
    • In addition, where the terms of purchase are FOB, CFR, etc. any Ex-Works to FOB charges will also incur a 6% surcharge; this 6% fee will be levied to all suppliers where terms are FOB
    In other words, the is not some arbitrary charge that is raised by the shipping line. It is payable on the freight and other export related charges prepaid in China. Any charges payable outside of China are not subject to this tax

  2. 

    I agree, why must the importer or exporter always pay

  3. 

    There exists uncertainty not only for freight forwarding industry.

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