Chinese tax reform to squeeze shady business out of seafood industry

Published on
October 28, 2016

Upping taxes and increasing regulatory oversight of the food industry has theen the recent focus of Chinese authorities, which have this year attempted perhaps the biggest practical change to the country’s tax system in decades.

After nearly a decade of trials and study of Western tax systems, China has replaced its Business Tax with VAT, meaning that companies will be excused from paying taxes traditionally collected by local authorities any will now be able to claim VAT on inputs.

Executives at a major Beijing restaurant chain serving local and imported seafood explained to SeafoodSource how tax on seafood will ultimately increase with the shift to a VAT system nationwide. The manager of the Tuanjiehu branch of Jindingxuan, a large restaurant in Beijing serving seafood-heavy Cantonese-style food – the chain is a major customer of Canadian firm Clearwater) – said under the new system, VAT will be collected by central authorities who are hoping the shift to the VAT system will widen the tax net, as more firms seeking to add or claim VAT will entail better records.

Overall, VAT reform will mean more taxes will be paid by the seafood and the related hospitality and logistics sectors “because everyone has to have clear records now if you want to pass on or collect VAT, it’s all interconnected now…” said the manager, who requested anonymity.

He also explained that while the latest reform may help China to ultimately collect more tax, the system calls for nine different VAT rates for various industries, making it complicated and unwieldy. It will raise the cost of compliance for restaurants like his. Chinese VAT rates vary from a comparatively (by Western standards) modest six percent for food and beverages and increasing to 11 percent for transportation services.

Meanwhile, important VAT exemptions for technological inputs and mechanical systems – encouraged by Beijing under its China Manufacturing 2025 blueprint to modernize its factories – could also be important in upgrading and mechanizing seafood processing factories.

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