Tax & Accounting Blog

How Technology Can Help China With The New Customs Self-Tax Methodology

Blog, Global Trade, ONESOURCE March 17, 2017

When the General Administration of Customs (GAC) announced an immediate change for tax collection in October 2016, there was a very limited pilot area of goods at Shanghai port that were able to participate in the new self-tax methodology. Goods under HTS chapter 84[1], 85[2] and 90[3] imported at Shanghai and declared to Shanghai Customs were allowed to use this methodology. However, at the end of 2016 GAC expanded this pilot into the Yangtze River Economic Zone which included 12 cities.

Comparison Old and New Tax Methodology

In the current process companies submit their import/export declarations to the local customs authority. Customs then releases a tax bill to the company after a full review of all declaration documents. The company pays the taxes based on the bill, and then the goods are released. Also, under the current process while the customs authority is reviewing the shipments and declarations, they are inclined to assist the importer/exporter with mistakes and modifications, leading to low compliance and audit risks to companies

Under the new self-tax methodology, the company is required to calculate the tax value and pay based on their calculation.  This is an additional step for companies before their shipments can clear customs. Self-tax was designed to help speed the process of goods release under customs authority.  However the new process has some companies dealing with the post-release review from customs, meaning they may need to respond after the compliance check is done and often after the cargo has already been moved.  Another additional step added to this new process.  By adding an automated solution to this process, this would support visibility to the steps and decisions, thereby supporting compliance with the legal requirements and less audit risk.

Without a technology solution, companies are now left scrambling to manually calculate the proposed taxes, adding an added risk of compliance if the calculation has been completed incorrectly.

Customs authorities introduced this new process to Chinese companies to bring about multiple benefits to both customs and companies.  Specifically the benefit to Customs was in providing the Customs officers with the ability to support a single day release on declarations by minimizing their current process of manual review of all details on the declaration documents.  This became a cumbersome task when added to this task was the expectation that Customs officers were required to support multiple industries and make comprehensive decisions, when often they were ill- equipped to support some industries.  Often the one day release goal was not met as the Customs official was challenged in deciphering the information.

Under the new process, there is less time spent on declarations providing customs with an ability to focus more upon suspect declarations and identify the shipments that require an inspection.

Similar to the CEE’s (Centers of Excellence and Expertise) in the United States, by choosing specific chapters as noted previously in this document for Shanghai port, the direction to focus upon certain chapters in the Harmonized Tariff and to a port that sees frequent imports of those items, allows Customs officers most experienced in this industry to comprehensively evaluate those declarations. In essence, they are leveraging these experts to provide accuracy and effective declaration review.

For enterprises, the greatest benefit is most noted in the reduction of import lead-time. Companies experience less wait times from the customs officers in releasing declarations, by being allowed to submit the declaration and self-tax.

Self-tax Methodology: Benefits and Challenges

Self-tax, though benefitting Customs and the importers with reduced clearance times, still has a negative impact to companies in doing the calculations.  Because this is not a country-wide process and does not cover the rest of the tariff chapters, companies may experience two different processes with their import/export declarations.

Currently companies pay taxes with instruction from customs.  Once paid – the process is complete since this is considered in China as an administrative decision. Under the self-tax methodology, companies still receive the tax instruction.  Though they have paid on what they declared they are now no longer protected under administrative decisions.

By implementing a technology solution that configures with local customs requirements, all trade elements will be current and the tax calculation should be accurate and defendable, including the relation between a company’s transfer policy and customs valuation.

In the very near future, this change will be country-wide and being ready to respond to these changes through technology seems the best way to meet the requirements and ensure the information is readily available to maintain compliance.

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[1] Nuclear Reactors, Boilers, Machinery and Mechanical Appliances; Parts Thereof