Crossing the Line: Will cross-border regulations trip up China?

Making the List

Smooth sailing for China’s bonded warehouses hit turbulence in the spring of 2016 with the announcement of looming changes to the tax structure governing cross-border imports, as well as a new restrictive “positive list” aimed at regulating the types of commodities allowed in to the warehouses.

One of the most immediate threats to the status quo is the creation of the so-called “positive list,” jointly circulated by eleven PRC government departments. This list outlines specific articles that would be allowed to move through bonded warehouses – in effect, placing arbitrary limits onwhat had seemed to be an unfettered marketplace.

In its first print, the “Cross Border E-commerce Imported Goods List,” as it is officially known, contained 1,142 products within eight categories. Products on the list would be permitted to move through bonded warehouses without further inspection of their customs clearance certificates. Commodities absent from the list would require “Customs Clearance of Entry

Commodities,” which, to qualify for, would require a range of documents, such as an original invoice, a quarantine inspection report and a guarantee slip.

The original list included some notable omissions – in fact, some of the most popular commodities were absent from the list. Local media in Zhengzhou reported that as little as 3 percent of the goods in the Zhengzhou pilot zone complied with the positive list. What then would happen to products not on the list?

The news understandably upset stakeholders up and down the supply chain. Hsu recalls that “in April, when the new regulation was announced, a lot of CBeC companies’ business volumes dropped more than 50 percent.”

At first it was unclear what exactly it would mean for goods omitted from the positive list. The president of Sino-Australian JV, Rex Group, Richard Jun Zhang said that, for a brief period, “we had to cancel orders or delete commodities from orders containing goods absent from the positive list.”

After the outcry from the business community, full implementation of the positives list was postponed until next May. Some tax laws however, were still subject to adjustment. In late March, three government bodies—the Ministry of Finance, General Administration of Customs, and State Administration of Taxation—jointly issued a circular that revised China’s taxation policy governing cross-border, B2C e-commerce imports. Full implementation of these new policies was also shelved until May 2017.

Beginning April 8, 2016, all goods moving through e-commerce channels were to be assessed a VAT and consumption tax. However, goods under RMB2,000 were taxed at a rate 30 percent lower than applicable taxes assessed to the same goods moving through general merchandise channels. Direct e-commerce shipments would continue to be taxed according to parcel tax rates, which were also increased.

Although during the transition period VAT and consumption taxes will not apply, the RMB2,000 ceiling for parcel tax, and an RMB20,000 annual spending limit on e-commerce transactions, will still apply.

This means that for the next year, parcels moving through e-commerce channels will still be assessed parcel taxes, albeit with slightly higher tax rates.