Logistics industry: a brief review of the impact of VAT reform on logistics

In terms of short-term profit impact, railways are positive and roads are negative but there is a possibility of large government subsidies, which has a slight negative impact on logistics. Involve the addition of 10 provinces and cities we covered by listed companies respectively ninghu high-speed, shanghai-hangzhou-ningbo high-speed (H), zhejiang, anhui anhui high-speed, high-speed chutian, c&d co, guangshen railway, yuexiu (H) and the highway transportation, we expect profit in negative influence to highway industry is about 1% ~ 1%, mainly due to tax rates rise from 3% of the sales tax to 6% of the value-added tax, but the cost of deductible items caused by less. Among them, zhejiang huhangyong's profit had the least negative impact, about 1%. Chutian expressway and wantong expressway had the biggest negative impact on profits, respectively 7.0% and 6.5%. For the guangzhou-shenzhen railway, we expect to have a positive impact of about 4%, mainly because there are many deductible items in the railway industry. For details, please see chart 1. However, according to the situation of Shanghai port group and Shanghai airport, during the pilot process, the government has a great opportunity to subsidize the increased tax, so the actual impact will be less than the theoretical value we calculated. At the same time, we also calculated the profit impact of the pilot project on listed logistics companies. On average, there will be a small negative impact of about 2%. Please see the chart 2 in the body of our report.
In the medium term, the cost of social logistics will be reduced and the profitability of the logistics industry will be improved. The expansion of the pilot scope will increase the deductible input tax scope, which will help reduce the burden of logistics enterprises and overall social logistics costs. But with a weak economy, overcapacity, fragmented industries and irregular tax administration, we think there will be a bittersweet process for the profitability of the logistics industry.
Initial profit negative impact, tax can not be effectively transferred. If the logistics is simply divided into three parts: warehousing, freight forwarding and transportation, since the former two tax rates are only converted from the 5% business tax to the 6% value-added tax, the actual impact is not big. The impact on the transport sector from a 3% sales tax to an 11% value-added tax is clear. We take the standard container road transport as an example, the charge is about 650 yuan / 100 km, and the downstream customer tax is reduced by 26 yuan after the tax reform. However, the transportation company is not able to deduct the input tax, the tax increase is about 12 yuan, and the overall tax on the chain is still down by 14 yuan, so it is favorable for the reduction of logistics cost (table 4). However, as the transportation industry is similar to a fully competitive market, in the current situation of insufficient demand, we think that the cost of tax increase before the economic recovery is difficult to effectively pass on.
The medium-term positive effect began to emerge. The improvement of competitiveness led to the increase of market concentration, and the gradual increase of deductible items led to the reduction of tax costs and the enhancement of profitability.
In terms of logistics enterprises, although short-term enterprise profitability may be negatively affected, the competitiveness of logistics services is enhanced by the issuance of VAT invoices. As for the downstream enterprises, they may further expand the scale of outsourcing to drive the expansion of market share of formal transportation enterprises. At the same time, the expansion of the tax pilot scope and regions will enable logistics enterprises to offset the increase of input tax, thus reducing the cost of taxes and increasing the profit margin. Therefore, in the medium term, the profitability of formal logistics enterprises will have a bottoming out process.
In the long run, it is conducive to the optimization of industrial pattern, but from the current situation, it will take a long time to complete. For small and micro businesses, the intention of encouraging the development and regularization of small enterprises is obvious. In the future, downstream customers will outsource their business to logistics or supply chain companies as a whole, and then to professional small enterprises with advantages in the market segment, so as to improve the operation efficiency of the whole chain and reduce the operation cost. However, consider: 1) the government has the determination of tax reform, but it is not enough in courage. 2) the current situation of the logistics industry is still very scattered, and the non-standard tax management in the low-end market is still dominated by vicious price competition. We believe that this gradual process still needs a long time to complete. If the tax rate can be lowered and unified, the industry will bring more than expected development opportunities.