HK 'day trips' get the chop as bonded logistic park opens

PUBLISHED : Tuesday, 02 February, 2010, 12:00am
UPDATED : Tuesday, 02 February, 2010, 12:00am

Hong Kong manufacturers are expected to benefit from a new customs facility in Guangzhou, designed to speed up tax rebates and lower their costs.

China Southern Airlines and Guangzhou Airport last week opened a bonded logistic park at the Guangzhou Baiyun International Airport in the mainland's effort to fast-track certain tax rebates and cut down on tax cheats.

Since the 1980s, Beijing has encouraged Hong Kong and Taiwanese manufacturers to come to the mainland by offering them tax rebates on imported raw materials used in products to export overseas.

The Pearl River Delta has thousands of these Hong Kong-owned factories that process imported materials, which can be everything from watches to electronics and are entitled to substantial tax rebates. These can include a full rebate on the 10 per cent import tax and a full rebate on the 17 per cent value-added tax paid, depending on what is manufactured.

The ultimate destination for these products is usually overseas - Europe and the United States. But to speed up the rebates, manufacturers sometimes 'export' the products first to Hong Kong to collect the rebate and then on to other markets.

The so-called 'Hong Kong one-day trip' is perfectly legal and also applies to semi-finished goods. A car tyre, for example, can be made on the mainland, shipped to Hong Kong to collect the rebate, then shipped back to the mainland to a carmaker that is building vehicles for export.

But the system has been subject to abuse. Some manufacturers ship products to Hong Kong to claim the tax rebates, then ship the products back to the mainland for domestic consumption, using fake documents to dodge the normal 15 per cent import tax.

Increasing domestic demand on the mainland has compounded the incentive to cheat, said a seasoned freight forwarder.

'It is very difficult for Beijing to monitor tax evasion [in the imported-material-manufacturing industries] in light of the complex tax structure in the nation, as well as the sparse application of the tax rebate measures,' said Sunny Ho Lap-kei, an executive director of the Hong Kong Shipper's Council. 'The tax rebate policy only applied in dedicated free-trade zones internationally, compared with the nationwide application on the mainland.'

The new custom-bonded park at Guangzhou Airport creates a legal short cut for manufacturers to get the tax rebate. When semi-finished or final products enter the area of the custom-bonded park, they will be treated as if they had passed through customs or 'exported'.

So manufacturers in the Pearl River Delta, which account for about 60 per cent of total processing-imported-material production in the nation, can send products to the logistics park to get their tax rebate.

The customs logistic park should mostly eliminate the 'Hong Kong one-day trip' by shortening the time and cost, according to a Guangzhou Airport official.

The cost for the one-day trip is about 7,000 yuan (HK$7,958) to 9,000 yuan per truckload, compared with the 800 yuan to 1,500 yuan trucking fee by using the logistic park. Moreover, the logistic park takes only about two to four hours to handle the process.

'We expect most manufacturers will use the logistic park rather than the one-day trip, due to the cost,' said Stanley Lau Chin-ho, the deputy chairman of the Federation of Hong Kong Industries.

'The only setback is the truck drivers, who will lose a lot of orders,' Lau said. 'But is it definitely good news for manufacturers in the Pearl River Delta.'

The 300,000 square metre logistic park is designed for 110,000 sqmetres of custom-bonded warehouse space. The official said four local freight forwarders were already operating before the park officially opened.