A new method to tax fruit shipped on consignment to China is being trialled in Shanghai ahead of the Chilean cherry season.
Kurt Huang, general manager of Oheng Import & Export Company, the customs clearance company at Shanghai’s Huizhan wholesale fruit and vegetable market, has developed the Fresh Port system that aims to reduce risk of over- or under-invoicing imported fruit.
Under the existing system for fruit imported on consignment, import tax is collected according to the cost, insurance and freight (CIF) value of the cargo and appropriate duties. For fresh fruits, the import duties range between 10 and 30 per cent, plus 13 per cent VAT, which is charged based on the duty paid, Huang explained.
Import duties will be reduced, he added, under special arrangements, such as free trade agreements (FTAs), which are already in effect with Peru, Singapore, New Zealand, Chile, Pakistan and ASEAN, with Australia and South Korea’s FTAs soon to come into effect.
“In order to avoid price fraud, Chinese customs officers inspect the cargo value carefully and sometimes the importer has to pay according to higher cargo value if the importer fails to justify the declared amount,” said Huang.
As such, [Chilean] fruit shipped on consignment currently faces a dilemma, he explained, because the actual cargo value is decided after the product has sold in the Chinese market, while the import tax must be collected before that.
“The value on the invoice is only a minimum guaranteed price, which is obviously impossible to pass the customs price inspection,” he pointed out.
“If the taxed value is higher than the final return, then the importer has paid more than they should, but won’t be refunded. If the taxed value is lower, the importer will face the legal risk of tax evasion. So with the growth we’re seeing in [import] volume and value, it becomes a serious problem for imports and for customs as well.”
Chinese customs is accordingly facing the challenge of how to charge a fair import duty at the same time as preventing price fraud.
Oheng Import & Export Co is now developing a system called Fresh Port under the supervision of the Commodity Price Office of Shanghai Customs, said Huang. Under the pilot project, shipments registered in this system will be taxed according to the invoiced minimum guaranteed price on clearance, with any balance to be paid later after the product has sold.
“Importers will be required to input the sales report into the system and multiple users will create overall data for customs to distinguish price fraud, and cargo damage can be justified by third-party inspection reports," he said.
Huang told Fruitnet that the system is expected to be in place ahead of the coming Chile cherry season, and will be trialled in Shanghai and introduced at other ports across China if successful.