There has been significant commentary on the proposal for the introduction of a processing charge on certain low – value import transactions (LVT) which are transacted through a Self – Assessed Clearance Declaration (SAC).
The commentary had originally arisen within the affected industry but soon extended into the political environment with the charge being described as a new “tax” and drawing criticism from the federal Opposition even though governments of both political persuasions have, over time, supported the concept of cost recovery which is also endorsed by the Department of Finance in guidelines which apply to all cost recovery arrangements.
The concern in the affected industry was not surprising given that the potential for the charge has re – appeared around the time that GST would start to be charged on SACs affecting some LVTs from 1 July 2018. Obviously the combination of the new GST with another proposed charge would have created significant problems for those affected.
Background and rationale for the charge
While the concerns on the immediate imposition of the charge seem to have dissipated with the recent announcement by the Minister of Home Affairs that the charge would not be imposed in the forthcoming budget, the issue has not gone away and, in all likelihood will be introduced in the 2019/2020 budget.
Given the prospect that the charge will be introduced it is worth considering its context and some of the issues relevant to its introduction of the new processing charge:
- The charge is not merely to raise additional revenue (like a tax) it is aimed at recovering the cost of processing SACs which have not previously attracted a processing charge. This can be contrasted to the Import Processing Charge (IPC) which applies to the processing of Full Import Declarations (FID);
- The IPC is intended to cover the costs of the review of FIDs by the Australian Border Force (ABF) and the Department of Water and Resources (DAWR) which includes review for items of concern by those agencies. In other words, the charge is to recover the cost of review of import transactions for border security and biosecurity risks;
- The quantum of the IPC on FIDs has long been an issue of contention with industry as, over time, it has increased significantly as the volume of cargo has increased and the nature of the risks have become more complicated;
- The decision not to impose the IPC on SACs was originally based on the idea that a SAC should operate as a low cost option for non – contentious consumer goods which did not attract customs duty of GST. However as the use of SACs has increased with developments in e – commerce trade there has been a view that the recovery of all charges from FIDs alone meant that those using FIDs were cross – subsidising the cost of processing the SACs, which was unfair as SACs were increasingly used for commercial trade;
- There have been previous reviews of the cost recovery arrangements of the ABF and the DAWR (both in their current or earlier forms). These have led to increases in charges by the agencies for other services (such as the IPC and the passenger movement charge) but it has never eventuated in the imposition of an IPC on SACs;
- The actual quantum of the charge to be recovered and how it would be levied through the imposition of the IPC on SACs is not entirely clear although I would suggest that both agencies would have a very good idea on these aspects based on years of data.
Ultimately the logic of imposing an IPC on SACs is hard to resist. There are still risks associated with SACs and the infrastructure and expertise used for SACs and FIDs is the same. Given the massive use of SACs there is no reason why the acknowledged risks and the costs to manage those risks should not be borne by imposing an IPC on SACs as well as on FIDs. The real issue then becomes how it is calculated and applied and then how that recovery is reconciled and adjusted according to actual costs
Issues with the imposition and implementation of the charge
At the moment the issue is subject to comment through a discussion paper issued by the ABF and the DAWR which remains open for comment by those affected. While it does not include details on the costing of the charges sought to be recovered or the likely IPC for SACs, it is a thorough treatment of the issue and well worth review and comment.
Some of the issues raised by the proposal include the following:
- Hopefully there will be continued transparency on the process including detail on how the amounts sought are to be recovered and how the charge is to be calculated. It should not be imposed in a way to become a technical barrier to trade or a charge contrary to WTO Agreements or FTAs.
- The charge should only be introduced after additional consultation with affected parties. It would be entirely counter – productive for it to be imposed suddenly with importers (or their service providers) facing additional charges of which they had no idea. Appropriate time should be allowed for development of any changes to software used by industry to process and report SACs.
- On the basis that the charge is to remove (or reduce) cross – subsidisation by FIDs, presumably the IPC on FIDs will reduce.
- The current proposal in the discussion paper is that it would only be applied on those parties lodging 1000 or more SACs in any one year. However, in my view, that seems unreasonable and could create inequities. As all SACs require review by the ABF and the DAWR then all SACs should be subject to cost recovery.
- I do not believe that the same charge should apply to every SAC and there should be some differentiation depending on the nature of goods (and their associated risk) and the value and number of goods subject of a SAC. The Customs Merchandise Processing Fee (or MPF) in the US does provide for differential charges. While recognising such an approach could encourage importers to mis-describe goods or their value to attract lower charges the approach does reflect the notion of equity which should apply to the charge and the ABF does have a regime which penalises such mis-descriptions.
- Payment of the charge by those using SACs should only need to be made in arrears, perhaps on a monthly or quarterly basis although that does raise the issue of consequential action if the charges are not paid. Would there be interest or penalties?
- Will those paying the charge be entitled to recover the charge alone or also be allowed to recover an additional management or administrative fee? If so, how would that be monitored?
- If the charge is to cover border and biosecurity risks then would those in the Trusted Trader Programme be entitled to a reduction in the charge (or removal in its entirety) given that those parties have had their cargo security arrangements vetted and approved by the ABF before entry into the programme? Would similar issues arise for those holding Approved Arrangements with the DAWR where their operations have similarly been tested?
- Would there be exemptions from the charge for charities or other meritorious groups or for medical and other items brought in by SAC?
- There should be a rigorous process which includes clarity on the charges intended to be recovered, how much is recovered and then whether the charge needs future adjustment. That also raises the issue of what should be done in the case that the charges over – recover the costs sought to be recovered? If that charge has already been passed to a customer of the party liable for the charge will there need to be a legislated process for the over – recovery to be returned to the customer?
The reality is that while the imposition of the charge makes sense and introduces a sense of equity in bearing of the costs of the agencies at the border, it needs to be done in a way which is transparent and reasonable and does not unduly distort or restrict the use of SACs or ecommerce.
I will keep you posted but, as always, if pain persists, consult your local customs and trade lawyer.