WASHINGTON — The Chinese government is expected to clarify its position on the valued-added tax on logistics services that has confused shippers and transport providers since it was imposed Aug. 1.
The lack of clarity regarding the 6 percent tax on logistics services has raised concern that misguided or bad actors are taking advantage of shippers. Although the VAT regime exempts international shipping, the tax is being tacked onto ocean and air cargo services out of China. That’s because the majority of container lines broker contracts with shippers via independent forwarding agents or liners’ brokerage arms operating in mainland China.
The U.S. State Department said China’s Ministry of Transport and State Administration of Taxation would jointly issue a circular relating to the VAT, Federal Maritime Commissioner William Doyle said in a statement. The guidance or clarification issued through the circular would be retroactive to the implementation of the tax.
“Recently, in the cooperation with the U.S. Consulate in Shanghai, we came up with a plan to seek information from U.S. companies on their experiences with the new VAT,” Doyle said. “This information would ultimately be shared with the Shanghai Bureau of Taxation and other (People’s Republic of China) agencies.”
Doyle said there haven’t been any complaints that China is moving from a business tax to a VAT, but there are “questions as to the fair application of the tax with regard to international maritime transportation.” The VAT, which allows Chinese manufacturers to claim value-added credits on their taxes, an improvement from the 5 percent business tax, is part of China’s efforts to shift its export-driven economy toward services. But for non-Chinese shippers, such as consumer electronics company Voxx International, the tax change has caused extra costs and headaches.
Doyle has expressed to Chinese officials that the U.S. business community wants to know whether there are potential refunds if they overpay the VAT. U.S. companies are concerned about inadvertently underpaying for taxes and the penalties they could face if they do so, he said.
The National Industrial Transportation League, the largest U.S. shipper group, in August asked the FMC to provide clarity on carriers charging shippers a 0.75 percent fee for handling the VAT. The FMC said a month later that it was looking at various options to “obtain further clarity” on how Beijing was implementing the tax.
Following a closed September meeting on the subject, the FMC said it was concerned that the VAT may harm U.S.-China oceanborne commerce, and that the commission has an interest in laws, rules and policies that may harm U.S. shipping and that may merit commission attention under section 19 of the Merchant Marine Act, 1920, or the Foreign Shipping Practices Act.