The tax rules, which took effect since 1 August, has made it difficult 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 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,” ICS said in a statement.
“One of the reported impacts is that hundreds 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 added.
Simon Bennett, director of external relations for ICS, said Beijing is “deeply conscious” of its commitments towards maintaining a level playing field in maritime services, and they have no wish to create any negative impacts on the competitiveness of Chinese exports due to the application of the VAT to international shipping services.
“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," Bennett said.
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