22 August 2013

Starting from Aug. 1, China has resumed the collection of value-added tax on bonded imported jet fuel sold by China Aviation Oil Co. Ltd. (CAO) to international flights through bonded warehouses at 11 airports across the country, according to a notification released jointly by the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) on Aug. 13.


The 11 airports include Beijing Capital International Airport (PEK), Tianjin Binhai International Airport (TSN), Guangzhou Baiyun International Airport (CAN), Chongqing Jiangbei International Airport (CKG), etc.

 

The notification also provides that the bonded aviation oil depots of Shanghai Pudong International Airport Aviation Oil Co. Ltd. and Shenzhen Chengyuan Aviation Oil Co. Ltd. shall follow suit.

 

Earlier in 2004, a policy was published demanding that all bonded imported aviation oil provided to international flights be sold at the price excluding VAT.

 

The new policy is said to be part of the expanding pilot project of nationwide conversion from business tax to VAT.  Previously, the executive meeting of State council held on Apr. 10 asked that railway transportation and post and telecommunication be included in the pilot project, followed by a joint statement issued by MOF and SAT on May 27 confirming that the project shall be carried out in transportation and part of the service industry starting from Aug. 1.

 

"It's good news for airlines", said an analyst. "They will at least be able to save on taxes that were double levied previously."

 

According to MOF's document, with the implementation of the business tax-to-VAT conversion project in transportation industry, airlines will be able to deduct the VAT for the aviation oil they bought.

 

The deduction of VAT will help alleviate airlines' fuel cost pressure. Airlines with relatively more domestic flights such as China Southern Airlines (CZ) and China Eastern Airlines (MU) will become the largest beneficiaries, said Minsheng Securities.

 

According to Great Wall Securities, however, the policy will, to some extent, ease cost pressure for CZ who runs a large proportion of domestic services, but the influence is limited.