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1 1 Tolls, Taxes, Duties, FTZs and other SC distortions Vande Vate Fall, 2011.
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Transcript of 1 1 Tolls, Taxes, Duties, FTZs and other SC distortions Vande Vate Fall, 2011.
11
Tolls, Taxes, Duties, FTZs and other SC distortions
Vande Vate
Fall, 2011
22
Tolls, Taxes, Duties, ….• Some Examples
– Tolls: Municipal/Provincial investments in highways in China• 30-40% of transport costs
– Taxes: • Circulation tax in Brazil (ICMS) by State
– Avg % of total cost directly attributable to ICMS» Toys: 42%» Computer: 38%» Television: 46%
• VAT – in EU (>15% with some exceptions)– Generally recovered for exports, but that takes time
• Duties– Brazil Average Applied Tariff 12%
– Export Incentives– Quotas
– Absolute Quotas on some textiles– Tariff rate quotas on raw sugar
– Cross Trade requirements• Especially in Aerospace/Defense
– Politics• Embargoes
– Regulations• WEEE, RoHS, CE, ….
33
Logistics Costs
• Typical Logistics Costs– 8-9% of GDP in US– Lower in EU– 18% of GDP in China
44
The Point
• Factors other than – Inventory– Transport– Time
Can have significant impacts on logistics decisions
55
Two Contradictory “Facts”
• Company’s generally will not allow taxes and the like to influence logistics decisions
• Supply Chain Engineers are Tax (& Duty & Tolls &…) Engineers
66
Why Not be influenced
• Competitors have to pay the same taxes, tolls, duties, …
• These factors can change over night…
• Being too clever can come back to haunt you…
77
Why be influenced
• These factors can place products out of reach of consumers
• Opportunity to gain short term advantage
• In many cases significant competition from grey market that does not comply
88
Some Examples of Influences
• Circumventing high duties– Product design/classification– Product Origin
• Manipulating the content especially via sourcing from particular countries regions
• Value added processing in strategic locations
• CKD/SKD: Complete/Semi-Knock down
• Local manufacturing
99
Deferring Duties & Taxes
• Cash flow impacts
• Inventory impacts: Transport and duties add to value in the pipeline
• Delaying or deferring duties can be attractive
• How?
1010
VAT in the EU
• Duty calculated on– Value of goods– Freight to EU border
• VAT calculated on – Value of goods – Total Freight– Duty
1111
Example• Shipment value FOB price = 400.00• Freight = 50• Duty = 3%• VAT = 15%• Reduction on freight 32% (EU Border)• Duty calculation:• 400 + 34 (= 68% of 50) = 434 base duty amount• 3% of 434 = 13.02 is duty • VAT calculation:• 400 + 50 + 13.02 = 463.02 x 15% = 69.45 VAT
• Different interpretation on rounding rules in various countries • Rate depends on where the customer is• Same impact as sales tax, but it’s always charged, not just charged to
end users (who are they?)
1212
Manufacturer Trader Consumer
1000 + 20%VAT (200) = 1200
2500 + 20%VAT (500) = 3000
3500 + 20%VAT (700) = 4200
Raw materials
Mechanics of VAT Italy
VAT declaration
-0 input tax+200 VAT
=200 VAT
charge
1200
pays3000
charge
pays
4200
charge
pays
VAT declaration
-200 input tax+500 VAT=300 VAT
VAT declaration
-500 input tax+700 VAT=200 VAT
IT Tax authority
1313
Manufacturer GBTrader IT
Consumer IT1000 €+VAT Ident No.
2500 €+VAT Ident No.
3500 + 20%VAT (700) = 4200
Raw materials DE
Mechanics of VAT multiple countries
Intrastat declaration1000 € supply0 € acquisition
charge
1000
pays2500
charge
pays
4200
charge
pays
Intrastat declaration2500 € supply
1000€ acqu.
DE Tax authorityIntrastat
UK Tax authorityIntrastat
Tax declaration
-0 input tax+700 VAT
=700 VAT
Intrastat declaration
2500 € acqu.
IT Tax authorityIntrastat
ITTax authority
----------clearing process / no payment----------
1414
VAT Reclaimed for Exports
• Exports generally have 0 VAT rate
• So the exporter has a credit
• Exporter maintains VAT account
• Applies to reclaim VAT paid
• Because of opportunities for fraud, there is processing and bureaucracy involved
• Leads to delays
1515
FTZ, EPZ, BLP …• FTZ: Free Trade Zone
– Trade, Manufacturing, Logistics & Services
• EPZ: Export Processing Zone– Manufacturing
• BLP: Bonded Logistics Park– Trade and Logistics
• Bonded Warehouse
• Inland (Dry) Ports
1616
Uses
• Position goods or components close to customer or factory without committing them to country
• Take advantage of low cost labor without complexity of entering country
1717
Disadvantages
• Administrative overhead from customs
• Various restrictions on export %, activities, …
• Typically limited land area
• Often positioned in disadvantaged areas
1818
Major FTZ’s
• Waigaoqiao FTZ in Pudong outside Shanghai, – Largest in China
• Colon FTZ in Colon, Panama– Largest in South America
• Manaus, Brazil– Middle of the Amazon
• Dubai, UAE– Several FTZs
1919
Time & Reliability
• Clearing customs can take time
• How long is not always reliable
• Customs strikes, slow downs, …
• Large importers push for automated customs clearance processes, pre-clearance, …
• Customs authorities push for more access, transparency, controls….
2020
Free Trade Agreements
• Failure of Progress in WTO negotiations
• Slow progress on Regional Trade agreements
• Proliferation of bi-lateral agreements
• Spaghetti of agreements that complicates trade
• Hong Kong has been left out
2121
Project Presentations
• Thursday, December 1st
– 3:00 Team Mintz– 3:30 Team Safari– 4:00 Audi Team
2222
Project Presentations
• Tuesday, December 6th
– 3:05 – Team Buzzkill– 3:50 – Team Delirium
• Can we use Skype and share desktop?
• Please test this capability in Exec. Classroom
• Hook up speakers
• Class in Exec. Classroom
2323
Expectations• For Dell Projects
– Project Overview• What’s your project focus• What data did you review• Acknowledge support from Elizabeth and anyone else who helped• Agenda
– Findings• What you were asked to present• What additional actionable findings you have, NOT how you got them• Make sure your presentation is clear, compelling, self-explanatory, true, organized• Make sure we know where we are relative to the agenda
– Summary • Quick statement of main recommendations/findings• Acknowledge Elizabeth again • Thank Dell for allowing you to participate• Brief overview of your backgrounds (or this can go in the beginning as you prefer)
– Back up• Anticipate any probing questions, clarifications of anticipated misconceptions, …Only
show this in response to questions