CHINA: An Introduction to International Trade: Customs, Export Controls & Economic Sanctions (PRC Firms)

Possible Systemic Changes in China’s Tariff Collection and Management System in 2024

On 27 January 2024, the Tariff Law of the People’s Republic of China (Draft) (“the Tariff Law (Draft)”) ended its public consultation. Subsequently, if there are no changes in principle, it can be expected that 2024 will usher in the formal promulgation and implementation of the Tariff Law in China, as well as the abolition of the current Regulations of the People’s Republic of China on Import and Export Duties (“the Tariff Regulation”). The system of laws, regulations and normative documents related to the collection, exemption, refund, reduction and penalty of tariffs etc, constructed with the Customs Law of the People’s Republic of China (“the Customs Law”) as the superior law, will be subject to a comprehensive and systemic revision. The original self-contained system of tariff collection and management will also be broken up and gradually harmonised with other tax categories. Although the final text of the Tariff Law has not yet been issued, from the legislative ideas and body structure embodied in the Tariff Law (Draft), it appears that the changes brought about by this legislative activity to the current tariff collection and management system will mainly be reflected in the following aspects.

1. China Customs will become a pure enforcement agency for tariff collection and management, fulfilling its duties under the authorisation of the Tariff Law

Since the implementation of the Customs Law on 1 July 1987, the Customs Law; the Tariff Regulation with the Customs Law as the superior law; the Administrative Measures of the People’s Republic of China on Levying of Taxes by Customs on Imports and Exports (“the Measures for the Administration of Customs Taxation”) with the Customs Law and Tariff Regulation as the superior laws; and the Implementation Regulations of Customs Administrative Punishments of the People’s Republic of China (“the Customs Administrative Penalties Regulations”), which also take the Customs Law as the superior law; constitute the fundamental legal framework for China’s tariff collection and management. This forms a self-contained tariff regulatory system in China, which is independent of other taxes and operates under the guidance of the Customs Law. Previously, China Customs had more voice and initiative in the field of tariff collection and administration, but in future, tariff-related collection, exemption, refunds, reductions, penalties, etc, will be operated in accordance with the Tariff Law or the authorisation of the Tariff Law.

2. The existing system of “one year’s back tariff” will be replaced by a system of “three years’ back tariff”

Articles 44 to 47 of the Tariff Law (Draft) rewrite the contents of Article 51 of the Tariff Regulation to harmonise with the provisions of Article 52 of the Law of the People’s Republic of China on the Administration of Tax Collection (“the Law on the Administration of Tax Collection”). Based on these articles, the period for Customs to confirm the tariffs payable is three years from the date of payment of the tariff by the taxpayer or the withholding agent, or the date of release of the goods. Accordingly, it appears that under the Customs Law and the Tariff Regulation, the provision that the Customs authority will make up the short-levied and omitted tariffs not caused by the taxpayer’s violation of the law, within one year from the date of payment of the tariffs by the taxpayer or the release of goods by Customs, shall be abolished. Subsequently, the difference in the treatment of underpayment and omission of tariffs not caused by the taxpayer’s violation of the law and underpayments and omissions due to violations by the taxpayer, will no longer be reflected in the period of time for paying back the tariff, but in the imposition of punitive late payment fees and other measures.

3. The substantive identity penetration identification may be introduced into the tariff collection safeguard mechanism

The Tariff Law (Draft) introduces many management concepts and measures from the Law on Administration of Tax Collection in the chapter “Collection management of tariffs”. One article stipulates that “with the approval of the Customs chief of the Customs office directly under the General Administration of Customs or the Customs chief of the subordinate customs office authorised by him, the Customs authority may, in accordance with the law, notify the immigration authorities to take exit restrictive measures against taxpayers, withholding agents, or legal representatives or actual controllers of taxpayers, who have failed to comply with the legal obligations”. This measure introduces the concept of the actual controller, along with exit restrictive measures, and provides the substantive identity penetration of the taxpayer’s identity, which will greatly improve the deterrent effect on the actual controller of the company and enhance the effectiveness of tariff collection.

4. The Tariff Law and the Customs Law may become a dual legal basis for punishing violations of the Tariff Law

The Tariff Act (Draft) improves the circumstances affecting the collection of tariffs that were not included in the original Customs Law and Customs Administrative Penalties Regulation and establishes that violations of the Tariff Law, other than those listed, will be penalised by the Customs authority on the basis of the Customs Law and other laws and administrative regulations. As a result, Customs will need to separately invoke the Tariff Law and the Customs Law to punish violations of the Tariff Law. Of course, the Customs authority will be able to penalise a much wider range of subjects than at present. The collection of tariffs is one of the four main functions of China’s Customs and ensuring that tariffs are collected to the fullest extent possible is the responsibility of Customs. The continuous emergence of new forms of international trade has placed higher demands on the regulatory capacity of Customs, and China’s constantly innovating customs clearance model also requires Customs to promote trade facilitation while balancing efficient regulation. The promulgation of the Tariff Law in the future will not only raise the legal hierarchy of tariff regulation, but also provide stronger legal support for the tariff collection work of Customs in terms of tariff collection models, measures and management objectives, etc.