23 September 2011 | Adam Leach
Buyers should develop a comprehensive “customs programme” to take full advantage of free trade agreements (FTAs) and limit the amount of duty paid on supplies from low-cost countries.
But the benefits of lower export taxes that come from reciprocal trading arrangements must be balanced against the additional cost that sourcing goods from these countries could include, according to a report published last week by KPMG.
Product Sourcing in the Asia Pacific highlighted that under the World Trade Organization code, duty paid by companies for supplies should be calculated only on the final price when purchased, and should not include subsequent supplementary purchases or add-ons. Tax does not need to be paid on any extra services, such as staff training on a product, warranty agreements or marketing services.
“Companies engaged in global sourcing activities are advised to coordinate their tax planning and operations planning to identify and exploit all potential cost-saving strategies,” said the report.
The report highlights the need for buyers to assess whether the benefits of FTAs, such as preferential duty rates for trade, are worth the extra time and money required to complete paperwork.
Willy Kruh, global chair of KPMG’s consumer markets, said: “Closer attention to efficiencies in production and the supply chain, in addition to optimising costs, may dictate that production be scattered across a number of countries. As a result, there will be implications for business structuring, working capital management, risk mitigation, tax and business process engineering.”
In terms of determining the tariff rates payable for imported goods, companies should look at splitting up supplies to change the applicable tariffs. Importing a piece of fully constructed equipment will be subject to a different charge than when importing the various components that make up the same piece of machinery. It is important to understand which way is most advantageous, while factoring in the extra cost of breaking the purchase down into smaller lots.