The Chairman of the International Chamber of Shipping (ICS), Mr Masamichi Morooka, has written to the Chinese Minister of Finance, encouraging the Chinese Government to continue its efforts to find a solution to the problems created by the application of Value Added Tax (VAT), since 1st August, to the transport and logistics services provided by ‘Wholly Foreign Owned Shipping Companies’.
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.
One of the reported impacts is that hundreds millions of dollars of shipping contracts with foreign ship owners that are normally concluded in China are now being concluded in other jurisdictions where the new VAT rules do not apply.
ICS – which represents the world’s national ship owners’ associations and over 80% of the world merchant fleet – has emphasised to the Ministry of Finance the great importance that is attached by the international shipping industry to the successful resolution of VAT issues that have been raised by foreign shipping companies which collectively transport a very significant proportion of China’s international trade.
ICS Director of External Relations Simon Bennett explained: “The Chinese Government is deeply conscious of its commitments towards the maintenance of a ‘level playing field’ in maritime services, and has no wish for the new arrangements concerning the application of VAT to international shipping services to have a negative impact on the competitiveness of Chinese exports, the vast majority of which is carried by ships.
“We have therefore welcomed the positive indications that have been given by the Chinese authorities during recent meetings with foreign shipping company representatives in Beijing that steps are being taken to address those concerns.”
He added: “However, these issues are very complex and we recognise the major challenge for the State Administration of Taxation in trying to find a solution for international shipping that will be consistent with China’s broader objectives as it seeks to move towards a system of VAT in other parts of the Chinese economy.”