TWO of the highest taxed goods that enter Australia are tobacco and alcohol. Recently, the Sydney Morning Herald reported that 2 million packets of cigarettes disappeared from a customs warehouse (also known in the industry as a Section 79) in 2018.
One of the purposes of a customs warehouse is to hold goods until the goods are needed and are ready to be consumed; the importer is not required to pay the tax at the time of arrival, they pay the taxes when the goods are ready to be consumed. The customs warehouse in topic reportedly had warehoused alcohol in addition to 2 million packets of cigarettes.
Based on today’s excise and GST rate, if I am to calculate 2 million packets of cigarettes with say 20 cigarettes in each packet the Australian Border Force and the Australian Taxation Office have lost $53 million in excise duty and GST and if I am to calculate 2 million packets of cigarettes with 30 cigarettes in each packet the ABF and the ATO have lost $79 million in excise duty and GST. The government has lost between $53 million and $79 million in excise duty and GST just in relation to the cigarettes; the calculations for alcohol are not available.
It is obvious now why tobacco from July 2019 could no longer be warehoused and was required to be excise and GST paid at the time of arrival; the ABF and the ATO did not want their fingers burnt from a similar situation in the future.
In Canada, a customs warehouse operator is required to provide to the Canada Border Services Agency (CBSA) on behalf of the Receiver General for Canada a security (in the way of a bond) equal to an amount of 60% of the maximum amount of duties and taxes that would be payable during the financial year; the security would be reviewed at least once in a year and may be decreased or increased depending upon the largest liability of duties and taxes that would be payable during the past financial year.
Hindsight is a great thing, but if the ABF had required the affected customs warehouse in 2018 to provide a 60% surety for the goods which had a $53 million to $79 million tax liability, then maybe the goods would not have been warehoused at that particular warehouse and maybe the risk could have been shared amongst other warehouses in Sydney. Had the ABF had a 60% security/surety system in place in 2018, the ABF and the ATO could have recovered between $31 million and $47 million in excise and GST.
While it is not a common occurrence that 40 million to 60 million cigarettes go missing, any risk assessment would have returned a rating of extremely high to high when assessing the risk of loss to revenue.