I. Formulas for calculating imported coal tariffs and VAT
According to relevant regulations, the formulas for calculating imported coal tariffs and VAT are as follows:
Imported coal tariff amount = dutiable value of imported coal × tariff rate
Imported coal VAT = (dutiable value of imported coal + tariff) × VAT rate
Among these, the calculation of tariffs requires determining the dutiable value and the tariff rate, while the import-stage VAT is calculated after the tariff is determined by applying the VAT rate. Currently, the VAT rate applicable to coal in China is 13%. The following mainly explains the determination of the dutiable value and tariff rate in the calculation of imported coal tariffs.
II. Determination of the dutiable value of imported coal
According to Article 18 of Chapter III of the Regulations of the People's Republic of China on Import and Export Duties (hereinafter referred to as the Regulations), "the dutiable value of imported goods shall be determined by the Customs based on the transaction price that meets the conditions listed in Paragraph 3 of this Article, plus the transportation and related expenses and insurance premiums incurred before the goods are unloaded at the place of arrival within the territory of the People's Republic of China."
The "transaction price" of imported goods mentioned in the above provisions specifically refers to: the total amount actually paid or payable by the buyer to the seller for the import of the goods when the seller sells the goods to the territory of the People's Republic of China, adjusted according to the provisions of these Regulations, including direct payments and indirect payments. The adjustment of the transaction price is specified in detail in Articles 19 and 20 of the Regulations:
Among them, Article 19 provides detailed provisions on the expenses that should be included in the dutiable value. The following expenses for imported goods shall be included in the dutiable value:
① Commissions and brokerage fees other than buying commissions borne by the buyer;
② The cost of containers borne by the buyer that are considered as a whole with the goods when determining the dutiable value;
③ The cost of packaging materials and packaging labor borne by the buyer;
④ The value of materials, tools, molds, consumables, and similar goods provided by the buyer free of charge or at a reduced cost in connection with the production of the goods and their sale to the territory of the People's Republic of China, which can be apportioned on an appropriate basis, as well as the costs of development, design, and related services undertaken outside the territory;
⑤ Royalties related to the goods that the buyer must pay as a condition of sale of the goods to the territory of the People's Republic of China;
⑥ The proceeds from the resale, disposal, or use of the goods after import that the seller directly or indirectly obtains from the buyer.
Article 20 provides detailed provisions on expenses that should not be included in the dutiable value. The following taxes and expenses listed in the price of the goods at the time of import shall not be included in the dutiable value of the goods:
① Expenses for construction, installation, assembly, maintenance, and technical services after the import of goods such as factories, machinery, and equipment;
② Transportation and related expenses and insurance premiums after the imported goods arrive at the place of arrival within the territory and are unloaded;
③ Import duties and domestic taxes.
In addition, the conditions listed in Paragraph 3 of Article 18 of the Regulations refer to:
① There are no restrictions on the buyer's disposal or use of the goods, except for restrictions imposed by laws and administrative regulations, restrictions on the geographical area of resale, and restrictions that have no substantial impact on the price of the goods;
② The transaction price of the goods is not unable to be determined due to tie-in sales or other factors;
③ The seller shall not directly or indirectly obtain any proceeds from the resale, disposal, or use of the goods after import from the buyer, or if there are proceeds, they can be adjusted in accordance with the provisions of Articles 19 and 20 of these Regulations;
④ There is no special relationship between the buyer and the seller, or if there is a special relationship, it has not affected the transaction price.
For cases where the transaction price does not meet the conditions specified in Paragraph 3 of Article 18 of the Regulations, or where the transaction price cannot be determined, the Regulations also provide methods for estimating the dutiable value; details can be found in the specific provisions of the Regulations. In practice, the dutiable value of imported coal determined in accordance with the above provisions usually refers to the cost, insurance, and freight (CIF) price of the imported coal.
III. Determination of the tariff rate for imported coal
1. Setting of import tariff rates
Currently, China's import tariff rates include the most-favored-nation rate, conventional rate, preferential rate, general rate, tariff quota rate, etc. For imported goods, interim rates may also be applied within a certain period.
In addition, if any country or region violates trade agreements or related agreements signed with or jointly participated in by the People's Republic of China, and adopts prohibitions, restrictions, additional tariffs, or other measures affecting normal trade against the People's Republic of China in trade, retaliatory tariffs may be imposed on imported goods originating in that country or region, and the retaliatory tariff rate shall apply.
The application of each tariff rate is shown in the table below.
2. Determination of the tariff rate for imported coal
The tariff rate for imported coal varies depending on the type of coal and the country/region of origin. The Customs Import and Export Tariff of the People's Republic of China (2021) provides specific provisions on the tariff rates for different types of imported coal, summarized in the table below.
In the above table, regarding the classification of coal, Subheading Notes 1 and 2 of the Customs Import and Export Tariff of the People's Republic of China (2021) provide specific provisions, namely: "1. The term 'anthracite' in subheading 2701.11 refers to coal with a volatile matter content (calculated on a dry, mineral-matter-free basis) not exceeding 14%. 2. The term 'bituminous coal' in subheading 2701.12 refers to coal with a volatile matter content (calculated on a dry, mineral-matter-free basis) exceeding 14% and a calorific value (calculated on a moist, mineral-matter-free basis) equal to or greater than 5,833 kcal/kg." The Customs Import and Export Tariff of the People's Republic of China (2021) does not define lignite. With reference to the national standard GB/T 5751 Classification of Chinese Coals, lignite includes two subcategories:
① Lignite No. 1: volatile matter Vdaf > 37%, transmittance PM ≤ 30%;
② Lignite No. 2: volatile matter Vdaf > 37%, transmittance 30%
Regarding the countries of origin, China's main sources of coal imports include Australia, Indonesia, Mongolia, Russia, Canada, and the United States. Among them, for coal imported from Australia, according to the China-Australia Free Trade Agreement and the Import and Export Tariff (2021), the conventional tariff rate of 0 applies. For coal imported from Indonesia, according to the Framework Agreement on Comprehensive Economic Co-operation between the People's Republic of China and the Association of Southeast Asian Nations and the Import and Export Tariff (2021), the conventional tariff rate of 0 applies. For coal imported from Mongolia, according to the Asia-Pacific Trade Agreement and the Import and Export Tariff (2021), from January 1, 2021, some coal types apply the conventional rate; the conventional rates for other coal and peat are 3.5% and 2.5%, respectively, and the remaining coal types apply the most-favored-nation rate. For coal imported from Russia and Canada, the most-favored-nation rate applies.
In addition to the normal most-favored-nation rate, coal imported from the United States is subject to additional tariffs. Among them, the Announcement of the Customs Tariff Commission of the State Council on Imposing Additional Tariffs on $50 Billion of Imported Goods Originating in the United States (Customs Tariff Commission Announcement [2018] No. 5) imposes an additional 25% tariff on all coal imported from the United States, and this has not been excluded later; the Announcement of the Customs Tariff Commission of the State Council on Imposing Additional Tariffs on Certain Imported Goods Originating in the United States (Third Batch) (Customs Tariff Commission Announcement [2019] No. 4) imposes an additional 5% tariff on unformed coking bituminous coal (tariff code: 2701.1210), but in the Announcement of the Customs Tariff Commission of the State Council on Adjusting the Measures for Imposing Additional Tariffs on Certain Imported Goods Originating in the United States (Customs Tariff Commission Announcement [2020] No. 1), the additional tariff rate on unformed coking bituminous coal (tariff code: 2701.1210) was adjusted to 2.5%. Since the final additional tariff rate is the sum of the additional tariff rates from each round, the additional tariff rate for unformed coking bituminous coal (tariff code: 2701.1210) imported from the United States is 27.5%, and the additional tariff rate for other coal imported from the United States is 25%. For those subject to additional tariffs:
Additional tariff amount = dutiable value for tariff × additional tariff rate
Tariff = tariff payable calculated at the currently applicable rate + additional tariff amount
The tariff rates applicable to coal imported from major source countries are summarized in the table below.
IV. Application example
Suppose a Chinese enterprise imports unformed coking bituminous coal from the United States, with a transaction price of CIF Qinhuangdao Port USD 125,000. The foreign exchange rate on the date the customs issues the tax payment notice is: 100 USD = 637.8 RMB (buying rate), 100 USD = 640.5 RMB (selling rate). The tariff is calculated as follows:
The customs examines the declared price and assumes it meets the "transaction price" conditions. The tariff rate is determined as follows: unformed coking bituminous coal (tariff code 2701.1210) imported from the United States applies the most-favored-nation rate of 3%, plus an additional tariff rate of 27.5%.
The exchange rate on the date the customs issues the tax payment notice is:
Midpoint rate for foreign exchange: 100 USD = (637.8 + 640.5) ÷ 2 = 639.15 RMB
That is, 1 USD = 6.3915 RMB
Dutiable value = 125,000 × 6.3915 = 798,937.5 RMB
Tariff = 798,937.5 × (3% + 27.5%) = 243,675.94 RMB
Import-stage VAT = (798,937.5 + 243,675.94) × 13% = 135,539.75 RMB
