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Issue 01, 2000 (15 January)

Bank of China to Provide Customs Duty Deposit Guarantee

The Chinese authorities have finally reached a decision regarding the method of payment of customs duty deposit by processing trade enterprises in the mainland, an issue of great concern to Hong Kong businesses. As from January 1, 2000 the Bank of China (BOC) may provide guarantees for processing trade enterprises in replacement for cash payment of customs duty deposits, thus reducing the pressure on the cash flow of such enterprises. Those that are unable to obtain guarantees from the BOC must pay their customs duty deposits by cash, cheque, draft or remittance.

Jointly formulated by the State Economic and Trade Commission, Ministry of Foreign Trade and Economic Cooperation, General Administration of Customs, People's Bank of China, State Administration of Foreign Exchange and Bank of China, the Implementing Procedures for Different Methods of Payment of Customs Duty Deposits by Processing Trade Enterprises became effective on January 1, 2000. According to the Procedures, financial institutions or legal persons approved by the General Administration of Customs may provide guarantees to Customs for processing trade enterprises. Currently, the General Administration of Customs and People's Bank of China have jointly designated the BOC as the financial institution for providing guarantees for processing trade enterprises. Other financial institutions may also provide guarantees upon obtaining approval.

Under the Procedures, if a processing trade enterprise is unable to pay customs duties or other tax deposits for certain reasons, it can make an application to Customs by producing a letter of guarantee issued by the BOC with Customs as the beneficiary. The amount of the guarantee provided by the BOC will include the relevant duties and taxes plus interest. The period of guarantee will be 60 days after settlement of the customs duty deposit.

Within the guarantee period, if there is an increase in amount or extension of term of the processing contract, the enterprise must apply to the BOC for permission to increase the guarantee amount or extend the guarantee period. In order to simplify procedures, upon request by the enterprise, the amount guaranteed by the BOC may be greater than the amount of the customs duty deposit.

Upon completion of an export contract or full payment of customs duties and taxes by an enterprise within the guarantee period, the liability of the BOC will automatically expire. However, if an enterprise fails to perform its export obligation within the guarantee period, Customs will demand payment from the BOC for the taxes due and the interest incurred. After making payment, the BOC may then take legal action against the guaranteed party.

The Chinese Customs has also revised the criteria for classifying Category A, B, C and D enterprises from January 1, 2000. Under the new system, only three types of Category A enterprises will not be subject to Customs supervision in regard to the payment of customs duty deposit. Also, the criteria for classifying Category C enterprises have been relaxed, and the retroactive date for penalising illegalities has been brought forward to June 1, 1999.

Qiu Qingfang, vice director of the Shenzhen Municipal Economic Development Bureau, pointed out at the Seminar on China's Processing Trade Policy Revisions organised by the Bureau and the TDC that the objective of the revisions was to make structural adjustments and regulate administration.

Another speaker at the seminar, the Shenzhen Customs Inspection Division deputy chief Tao Zhiqiang, explained the latest standards for categorisng processing trade enterprises. In the latest round of adjustment, focus was mainly placed on the classification of Category C enterprises (see Table 2), while the criteria for classifying Category A, B and D enterprises have remained unchanged. For example, the retroactive date for violations of regulations and amount of penalty for Category A enterprises will continue to be August 1, 1998 and Rmb1,000. The new retroactive date of June 1, 1999 and Rmb10,000 penalty only apply to Category C enterprises.

Tao also pointed out that the treatment of Category A enterprises has been further clarified. As of January 1, 2000 Category A enterprises with annual exports of US$10 million or more will not be subject to Customs supervision with regard to customs duty deposit, while Category A enterprises with annual exports of US$1-10 million are subject to "nominal" payment of customs duty deposit (see Table 1).