China’s VAT Creates Disadvantage for Non-Chinese Shipping Companies
by Jared Vineyard
On August 1st, 2013, China’s Value Added Tax (VAT) reform went into effect throughout China.
As August approached, Universal Cargo Management shared the effect of China’s VAT on shippers, the biggest gist of it being the VAT increases shipping costs by 6%.
The way the VAT is affecting shipping lines, specifically non-Chinese shipping lines, is causing some backlash.
There are tax rules set up in the VAT reform where shipping companies can reclaim the VAT in China, but apparently there are problems for non-Chinese companies.
According to an article from the British International Freight Association, “The problems exist because it is much harder for foreign shipping lines – as opposed to Chinese companies – to reclaim the 6% VAT (and a 0.8% VAT surcharge on ocean freight) that is now collected by shipping agencies in China, and so avoid passing this on to their overseas customers. The unintended consequence is that foreign carriers are being placed at a competitive disadvantage to Chinese shipping companies.”
Seatrade Global reports, “The International Chamber of Shipping (ICS) has urged the Chinese government to continue seeking a solution to resolve the Value Added Tax (VAT) problems currently faced by foreign-owned shipping companies, with ICS chairman Masimichi Morooka writing to the Chinese Minister of Finance…”
If China does not fix the problems with the VAT rules, it could be costly for the country.
ICS says, “One of the reported impacts is that hundreds of millions of dollars of shipping contracts with foreign shipowners that are normally concluded in China are now being concluded in other jurisdictions where the new VAT rules do not apply.”
It takes a little time to see how a change like China’s VAT reform affects shipping behavior and the imports and exports of a country. It’s only been a few months since the VAT reform took effect. At the quarter mark, we should get a better look at how the VAT has initially affected China’s international shipping and trade.
Initial reactions to a policy change like this one can also be misleading as to its long-term effects. We’ll be keeping an eye on what the data and analysts have to say about the VAT’s effects on China’s imports and exports.
This story of non-Chinese shipping lines being put at a disadvantage against Chinese shipping companies is one of the first effects we see of the new VAT.
It will be interesting to see if China fixes the problems as ICS is urging.
Of course, Universal Cargo Management is still ready to help you import and export from and to China.