AN art import tariff is reduced from 12 percent to 6 percent to encourage true customs declarations, but collectors and dealers are still sneaking art into China without paying fair duty. Wang Jie explains.

There was a time when Chinese collectors and art dealers were famous at overseas auctions, lavishing money on relics, ancient paintings and contemporary art. Many brought their purchases home to the Chinese mainland, some to be auctioned, with little or no duty.

The situation is different today and a new 6-percent tariff on fine art plus the 17-percent value-added tax total around 23 percent - compared with zero in Hong Kong. Tariffs and taxes on art are low in most other countries and regions.

According to China's new tax law implemented on January 1 on the mainland, a 6-percent tariff is now levied on imported canvases, watercolor and sculpture - half the original 12-percent tariff of the previous years.

It doesn't cover antiques and ancient art, but that is supposed to be declared at full value and customs officials then decided how much, if anything, is to be paid.

Tax a big issue

Of course, no one wants to pay tax and the issue is important for China because Chinese buyers of art and antiques have surpassed Americans as the biggest such buyers worldwide. China's auction market is also booming.

However, whether 6 percent or 12 percent, the tariff is often ignored and China Customs is cracking down.

All of this is having an impact, making art more costly. For one thing, Chinese buyers of expensive art abroad are likely to hold it and don't import it to the Chinese mainland, even traditional art and relics considered part of China's patrimony.

Recently some Chinese art "crocodiles" - heavyweight collectors and dealers - were caught evading import tariffs, according to the Art Weekly column in the Oriental Morning Post on May 21. The foreign manager of an art-freight company was also caught and questioned about allegedly falsifying values of imported artworks to help buyers avoid millions of yuan in import duties and value-added taxes. He was released.

Authorities started closing in shortly after the Chinese Lunar New Year holiday in January.

According to the newspaper, the only two Chinese shipping companies certified to import artworks from overseas to China were seriously investigated and the list of their clients was seized by customs authorities. The newspaper also revealed that some collectors and art dealers have been interviewed for import tax evasion.

There has been no public announcement, but news is expected to trickle out after further extensive investigation.

Asked about antiques and ancient art, a representative of Shanghai Customs, declining to be identified by name, on Thursday told Shanghai Daily that everyone is required to declare the full value of artwork entering the port. Customs officials then decide if a tariff is applicable and, if so, how much.

Subterfuge

Importers use various kinds of subterfuge to avoid paying tariffs.

"I once purchased a 1.2m-by-1.4m canvas in Hong Kong," says one staff member of an art fund who declined to be identified. "But when I entered customs, I just said it was a decorative piece."

He and others in art circles say that some importers may obtain false documentation on price so they pay lower tariffs and value-added tax.

"Of course, if and when it is later found out, the penalty is daunting, but how could customs possibly check every piece of artwork that enters the country?"

Other people disguise artwork as other items and check the wrapped items at airports.

"Some people declare the artworks in the category of 'temporary entry and exist goods'," says the art fund employee. "Naturally, this leaves a certain period of time for galleries to exhibit and auction the work. Later they might use a reproduction to deal with customs while the original work has already been sold within the Chinese mainland."

There are no art tariffs in China's Hong Kong Special Administrative Region and in the United States, Canada, New Zealand, South Korea and other countries or regions.

"The original 12-percent tariff plus 17-percent value-added tax and 5-percent business tax in China together exceeds 30 percent, a considerable figure'," says Lily Lee, owner of LMYJ, a private gallery in Shanghai's Si'nan Mansions. "So sometimes I sold those overseas artworks outside the Chinese mainland to my clients without entering the Customs here'."

For example, for a painting purchased for 10,000 yuan (US$1,575) outside the mainland, the art tariff is 600 yuan, plus 1,904 yuan of value-added tax.

The high art import tariff in the mainland also weakens its art status and power in Asia, since Hong Kong is a more convenient and inexpensive port for art import. The fading of ShContemporary in Shanghai and the booming of ArtHK12 in Hong Kong reflects this situation.

"Many overseas galleries and auction houses prefer to go to art fairs in Hong Kong for trading. If the art tariff becomes stricter, then it will impact the whole art industry in the future," says Mr Ji, owner of a Shanghai auction house, declining to be further identified.

New strategy

For Chinese auction houses collecting artworks outside the Chinese mainland, the strict inspection and tariffs require a new strategy.

"We would ask the seller to transport the artwork back to the mainland themselves," says the director of an auction house in Beijing who declined to be identified.

"We could sign the contract outside the mainland, since we don't want to be involved with any violation of regulations and rules."

In his view, it's still good that the government decreased the tariff to 6 percent.

"But 6 percent only covers oil painting, watercolor and sculpture not ancient Chinese artworks," he says. "In the past, auction house staff would carry the works themselves onto aircraft."

He suggests that customs officials consider an auction house to be an art company, rather than a trading company subject to tariffs.

"We only charge a commission to our clients," he says. "Compared with Christie's and Sotheby's, we are now at a disadvantage because of the tariff."

Lily Lee, owner of the Sinan Mansions gallery, concurs.

"I understand the government's good intention to encourage true declarations," she says. "But the fact is that Customs will never know the total value of artworks entering Chinese mainland if the tariff isn't reduced to zero."