Tax overhaul a headache for some in cargo

PUBLISHED : Monday, 18 June, 2012, 12:00am
UPDATED : Monday, 18 June, 2012, 12:00am

A programme to overhaul the mainland tax system for logistics, shipping and other cargo firms by replacing business taxes with a value-added tax has generated mixed views.

Some observers said the pilot implementation of the scheme in Shanghai had already caused confusion and could have been better implemented, while others said there had been little impact so far.

The reactions followed initial reports that mainland authorities were to extend the pilot VAT scheme from Shanghai to Beijing from July 1. But the Shanghai Securities News reported last Monday that the roll-out of the trial in Beijing and other cities and provinces including Shenzhen, Xiamen, Hainan, Anhui and Fujian had been postponed to early October.

Under the Shanghai pilot scheme, value-added tax replaced business taxes on a raft of freight transport-related services from January 1.

This made airlines headquartered in Shanghai, including China Cargo Airlines and China Eastern Airlines, subject to VAT on domestic cargo shipments, while airlines not headquartered in the city continued to pay business taxes. International shipping lines, logistics companies, ship agencies and warehousing operators were also affected.

KPMG, the international tax advisory consultant, said some services bought and provided by these companies were exempt from VAT while other operations should include VAT. Typically, a 6 to 7 per cent VAT rate has replaced an 11 per cent business tax charge.

In a briefing paper, the consultancy firm said the transport and logistics sector faced many complex issues in implementing VAT. 'These complexities are likely to continue for some time as the VAT pilot programme expands across mainland China and until a number of technical issues are resolved,' KPMG said.

Mark Millar, managing partner of logistics consultancy M Power Associates, said: 'The whole VAT thing is a complete mess, but it will work its way through eventually.'

Explaining the impact of the pilot programme, Rick Leo, managing director of CEVA Logistics Shanghai, said the firm's business grew by about 10 per cent in the first quarter but its tax liability doubled. But he added he was not against the tax revamp, which had been designed to restructure the industry and make the tax system more equitable.

Jacques Chan, general manager for Hong Kong and South China at logistics company BDP International, also supported the change in the tax system, with some reservations.

'The main objective is to eliminate double taxation or the differential business tax rates and enable a fairer VAT deduction system,' Chan said. But implementation issues had arisen because the system did not provide a proper channel for firms to claim their VAT credits.

'As a result the impact of the pilot project on transportation companies remains uncertain,' he said.

Sng Peng Koon, chief operating officer for domestic integrated logistics in Greater China for Agility Logistics, said the aim of introducing VAT to replace business taxes was to make tax collection more transparent. While VAT was collected by the State Administration of Taxation, business taxes were administered locally, and as a result firms could do business in one area but pay business taxes in another, he said. 'There was a bit of haste', and should have been more preparation before the scheme was launched, he said.

Pamela Lin, logistics director for LVMH Perfume & Cosmetics (Shanghai), said the company was 'trying to be fair' with its trucking contractors, sharing the tax savings and subsidising extra tax costs where necessary.

6-7%

Typically, a value-added tax rate of this much has replaced an 11 per cent business tax charge under the trial programme for the sector in Shanghai

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