TOP TIPS: Benefitting from China's new tax policy

Former tax partner at KPMG China and now director of consultancy firm BC Advisory, Bolivia Cheung, offers a step-by-step guide for CFOs to take advantage of the Shanghai VAT pilot.

Transportation, modern services sectors, manufacturers and cross border businesses are set to benefit from China’s expanded value added tax (VAT) regime under a pilot rolled out in Shanghai since January.CT asks how China-based companies can realize the savings.

Location, location, location:

• Companies already located in Shanghai need to re-consider their pricing policy. What’s your price elasticity? Can you shift your VAT to your customers? Do you need to slash your price to share the VAT saving with your customers? Similarly, how does it affect your purchasing price?
• For those with operations outside of Shanghai, companies need to do a cost-benefit analysis to see whether it makes sense for them to relocate. Shanghai may outweigh other cities in tax savings temporarily, but other factors such as easy access to suppliers and customer base need to be considered as well.
• For some industries, such as a logistics company, it is hard to move warehousing facilities. And relocation can mean losing your customers. Besides, the city where the company locates may implement the pilot scheme some time later.
• Transitioning from BT to VAT:

• Simulation and forecasting is a must to determine the new pricing policy.
• Communication between sales and marketing teams is needed to understand price-sensitivity level of customers and competition in the market.
• Companies should act now since you may risk losing your clients to your rivals who have quickly responded to the new tax changes and come up with new pricing strategies.
• Upgrade your IT systems to make sure they are VAT ready. Implement controls to safeguard special VAT forms and receipts and train your staff on it.

Effective tax planning:

• For revenue and income, check whether you fall into the VAT scope. If you have mixed sales, should you separate them to enjoy the tax benefit or maintain the status quo for compliance or customer retention reasons?
• For cost and expenses, you should review each item to see if you can ask the suppliers to provide you with the VAT invoices to claim VAT credits later. If so, will it increase the purchasing costs?
• For VAT-eligible services targeting overseas market or export-bound, you may opt for two different policies—tax exemption or zero-rated. Are you aware of the difference between their input VAT treatments?
• For importing services from abroad, will this fall under VAT scope so that the VAT paid can be credited instead of resulting in a BT leakage?

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Quoted from The Corporate Rreasurer

http://www.thecorporatetreasurer.com/News/308836,top-tips-benefitting-from-chinas-new-tax-policy.aspx