A new decision by China to place a 6% VAT charge on freight and related costs is going to have an impact on the importing price from China.
This is according to Asgar Mahomed, MD of Esquire Technologies, who says the new Chinese policy means all freight charges paid in China are to be subjected to the tax rise.
“In terms of the new tax law, the cost of the VAT is passed onto customers in China, which can recover it as an output tax refund. If the customer is located outside of China, it represents an additional cost,” he says.
“What this means for the import industry is that we are going to see a 6% cost increase, which is going to have to be absorbed into the prices we offer our clients.
“This is indeed a surprise move by China and it is going to have a ripple effect within our industry,” he adds. “The new tax was actually in effect from 1 August in China – but we only heard about it now. A 6% hike is a steep one, especially with the volumes of imports that Esquire does.”
Mahomed confirms that the announcement by the China central government is applicable throughout mainland China, and will “be applicable to all logistic components payable in China”.
It is understood that the new rule has been the subject of many discussions and that interpretation of this new rule may/may not be fully comprehended at this point, Mahomed says.
“In the past, freight forwarding firms in China were able to enjoy a 6% refund from the Administration of Taxation for transportation services, which in turn would allow them to reduce the amount of duties owed by them to the Chinese Government.
“However, with the new policy introduced on 1 August 2013, forwarding firms in China will now be prohibited from being granted this refund. This new rule effectively means that the 6% VAT charge will now be assessed on all prepaid transportation services in China.”