In April this year, the Standing Committee of the National People’s Congress (NPCSC) voted to adopt the Customs Tariff Law of the People’s Republic of China (China Tariff Law), which is scheduled to take effect on 1 December, 2024.

The enactment of the China Tariff Law is of great significance for the development of global trade, expanding institutional opening-up and promoting high-quality development. It is also an important measure to implement the reform of statutory taxation.

Main changes compared to current Customs tariff regulations

The China Tariff Law keeps the stability of the current tariff system, with the overall tariff burden remaining unchanged after implementation. The main changes of the law compared to the current Customs tariff regulations are summarized as follows:

1. Standardize and clarify the adjustment authorities and procedures for tariff items and rates – the Standing Committee of the National People’s Congress, the State Council and the Tariff Commission of the State Council

Clarify the types of different tariff rates, including the MFN rate, conventional tariff, the application of MFN rates under special cases and general tariff in the import process, export tariff rates in the export process and the quota tariff rates, interim tariff covered in both import and export process, etc. Set rules for the application of tariff rates and adjustment mechanisms for each tariff category.

2. Clarify the tax obligations and responsibilities under new business models and trade modes – withholding agent and legal liability

The China Tariff Law clarifies who shall be the obligated withholding agents as well as their responsibilities. For cross-border e-commerce (CBEC) retail import businesses, the withholding agents of tariffs include e-commerce platform operators, logistics firms, customs declaration agencies, and individuals or entities mandated by law to withhold tariffs. In addition, in terms of the penalty for violation, Customs will impose on the withholding agent a fine of not less than 50% and not more than three times the amount of the tax which should have been withheld or collected, which is stipulated in the China Tariff Law.

3. Build a modern customs tariff administration system – providing legal basis for Customs’ mature experience and practices

Regarding international high-standard economic and trade rules, further improvements have been made to the system for tariff-levying administration. Arranges the legalization of established reform measures on the nationwide integration of customs clearance, two-step declaration and consolidated tax collection, etc. to maintain the stability of tariff levying administration policy.

4. Controversial issues – priority of customs tax, anti-circumvention

From the perspective of priority of customs tax collection, it clarifies that Customs taxes take priority over unsecured claims, except as otherwise provided by law. If taxpayers’ tax arrears occur before the mortgage or pledge, the tax shall be enforced before the mortgage or pledge. 

Furthermore, the China Tariff Law has introduced the concept of “anti-circumvention measures” for the first time at the concept of customs legal aspects. For behaviours that reduce the dutiable amount without reasonable commercial purposes, the authorities could take anti-circumvention measures such as adjusting tariffs.

5. Align with other tax administration regulations – tax refund/claw-back periods 

The China Tariff Law aligns the adjustment of tax claw-back and refund periods with the Tax Collection Administration Law. Under previous Import and Export Tariff Regulations, after the release of goods, if the Customs discovered underpaid or unpaid taxes which were not due to the taxpayer’s violation of regulations, the taxpayer would be required to make up the tax shortfall within one year from the date of payment or release. 

The China Tariff Law has adjusted the deadline for tax claw-back to three years. It is important to highlight that Customs is not bound by the collection period when collecting tariffs linked to smuggling activities. With respect to tax refunds, taxpayers now have three years to identify an overpayment of taxes and submit a refund request to Customs. To secure a refund, taxpayers must submit a written request, undergo Customs review and fulfill the necessary refund procedures.

Recommendations

With the China Tariff Law coming into effect in December, it is important for enterprises to better strengthen customs compliance management and control any tax-related risks. Our recommendations are as follows:

• Actively conduct self-inspection of the customs declaration process and the accuracy of tax-related elements.
• Manage tax-related risk and lower potential tax exposure through Voluntary Disclosure, Customs Advanced Ruling application, etc.
• Pay attention to regulatory updates, keep close communication with Customs and make timely adjustments to the internal control compliance scheme accordingly.

Ryan Wu, Partner, PwC China