Explanatory Memorandum(Circulated by authority of the Minister for Justice and Customs, Senator the Hon Christopher Martin Ellison)
Schedule 4 - Exports Measures
A proposal to amend the customs Act to enhance compliance with statutory requirements in relation to exported goods
Section 119 of the Customs Act 1901 requires the master or owner of a vessel or pilot or owner of an aircraft to present an outward manifest to Customs prior to the departure of the vessel or aircraft. This manifest has a dual function for Customs purposes. As export entries may be lodged any time prior to exportation, the manifest is used as the confirmation that the goods are to be actually exported and where the goods are located. This information is used by Customs to identify where goods are for the purposes of examination to prevent the exportation of prohibited exports.
The manifest is also used by Customs, the Australian Bureau of Statistics (ABS) and other government departments and agencies to identify which goods have been exported from Australia for statistical and cargo control purposes.
Current industry practice is to provide Customs with the outward manifest immediately prior (eg, one hour) to the departure of the vessel or aircraft. This affords industry with as much time as possible to compile the necessary information while still conforming as closely as possible with the requirements of the Act.
This dual use of the outward manifest by Customs, however, presents a number of problems in that the document does not adequately serve Customs (and others) in both roles. As a method for providing Customs with information regarding the location of goods prior to exportation, it is inadequate as the short timeframes involved give Customs little scope to locate and organise an examination of goods for export. As a method of identifying which goods have been exported, it is inadequate as carriers are often able to accurately complete a final manifest only after the vessel or aircraft has departed, resulting in exported cargo not being reported to Customs.
Certain customable and excisable goods are stored under Customs control in licensed Customs warehouses. In particular, high duty rate items such as alcohol and tobacco are stored under Customs control until they are delivered for home consumption or exportation in order to defer or avert any payment of duty.
When warehoused goods are exported, subsection 99(3) of the Act requires that they must not be taken from the warehouse unless they have been entered for exportation and an authority to deal (ATD) with the goods has been issued in accordance with section 114C of the Act.
It has become apparent that goods are frequently released from warehouses when the licensee is presented with either false or altered export documentation and some or all of those goods are never exported but rather diverted into the domestic market without the duties having been paid to Customs. Customs effectively loses control of the goods between their departure from the warehouse until they are delivered to a prescribed place for export. It is during this time that large quantities of dutiable goods are diverted into the domestic market and are not brought to account, resulting in a significant loss of government revenue and commercial disadvantage to legitimate operators.
Subsection 113(2) of the Act specifies the instances where goods for export do not require the lodgement of an export entry with Customs. Two paragraphs relate to the exemption from entry requirements based on the value of the goods. They are:
- paragraph 113(2)(b) - consignments exported via Australia Post, valued at $2000 or less, need not be entered; and
- paragraph 113(2)(c) - consignments of a single commodity (ie, single statistical item) exported by ship or aircraft, valued at $500 or less, need not be entered.
The different definitions of these export entry thresholds result in the different application of reporting requirements across different modes of export. This causes confusion in the exporting industry, particularly with the reference to statistical items, and may provide Australia Post with a competitive advantage with regard to export entry requirements. Similar differences with respect to import entry thresholds have recently been the subject of a report by the Commonwealth Competitive Neutrality Complaints Office.
The power to examine goods for export is considered crucial to the control of exports, for the detection of prohibited exports and the prevention of evasion of excise duty or GST liability by diversion of goods into the domestic market. The general power of Customs to examine goods applies to goods that are subject to the control of Customs. A principal impediment to the effective control of exports are the limitations imposed by section 30(1)(d) of the Act in respect of the types of, and the places at which, goods become subject to Customs control. Section 30(1)(d) of the Act provides that goods for export to which conditions apply are subject to the control of Customs from the time they are brought to a prescribed place for export. Prescribed places include ports, airports and licensed Customs depots. The difficulty is that not all goods for export can be examined at such places either because of the limited time that they are located there, or the way in which they have been packaged for export.
Customs must prevent the exportation of prohibited exports and the evasion of government revenue through diversion of goods into the domestic market. In order to perform these roles, Customs must be able to risk assess information about consignments departing Australia. Customs also collects statistical information regarding exported goods for both the ABS for balance of trade statistics and the Australian Taxation Office (ATO) for GST risk-assessment and compliance purposes.
The objective is to enhance Customs capacity to perform these functions without placing an undue compliance burden on industry.
The current industry practice of providing outward manifests close to the departure of the vessel or aircraft makes it difficult for Customs to adequately screen the cargo to be exported on board that vessel or aircraft to investigate the presence of prohibited exports. This increases the potential for the exportation of prohibited exports and the difficulty to verify the exportation of goods for GST purposes.
As the manifests are reported prior to departure, when the carrier is not aware of all of the cargo loaded on board the vessel or aircraft, it is common for cargo to be excluded from the manifest presented to Customs. This results in cargo not being considered exported for statistical purposes, requiring significant effort from Regional Exports Processing sections to correct the manifests after departure.
The current arrangements are wasteful of Customs resources, do not allow Customs to adequately undertake its responsibilities with regard to the examination of export cargo and do not provide the desired quality of export data.
As the current outward manifest inadequately fulfils two functions, it would be more appropriate to develop separate mechanisms to fulfil each of these functions individually. This would require one instrument to inform Customs of goods for export arriving at a Cargo Terminal Operator (CTO) for examination purposes and another to report the goods exported on each vessel or aircraft for statistical purposes.
When goods are delivered to a CTO, the Customs document number for the consignment or consolidation (eg, Export Declaration Number, Transhipment Number) is reported to Customs by the CTO. This will inform Customs of the location of goods for export and whether or not they have an ATD. As it is unlikely that the goods would have been loaded for export at this stage, Customs has the opportunity to adequately risk assess and examine the goods, if necessary. This also has benefits in preventing the diversion of underbond and goods for which GST-free status has been claimed into the domestic market (refer 3.2.2).
Many carriers are unable to provide Customs with a complete outward manifest until after vessel or aircraft departure. Since the manifest will not be needed to determine the location of the goods, it is possible for it to be required at some time after departure. This will ensure that carriers have more time to finalise their manifests to provide Customs with complete and accurate information, thus meeting ABS requirements.
A common approach used in other countries is not to collect information regarding goods for export prior to the exportation occurring. In these cases, exporters or agents provide the relevant Customs agency with a periodic post-departure report to allow for the compilation of export trade statistics. Risk assessment of export cargo is based on gathered intelligence.
Under this option, exporters would prepare a summary of the goods that they have exported over the last month and provide this to Customs. This would be used as the basis for any future risk assessments and also be provided to the ABS and the ATO for use in the compilation of trade statistics and for GST risk assessment. This would not meet Permit Issuing Agency requirements for the control of prohibited and restricted goods for export.
Currently, underbond goods may only be released from a licensed warehouse for export if the goods have been entered for export and have an ATD. The only resource available to warehouse proprietors to check those requirements is to examine the Export Clearance Number (ECN) of the consignment to see if it is clear (ATD) or in error (no ATD). As this method is open to manipulation of the status-character of the ECN (the 'C' for clear or 'E' for error), it is possible for goods without an ATD to be released from a warehouse. As the details of the entry are not validated against Customs systems, it is also possible for an ECN that does not relate to the particular goods being removed from the warehouse to be used.
This has the potential to, and does, result in goods subject to Customs control being diverted into the domestic market and significant amounts of government revenue being evaded. In addition, there is an uncertainty as to the liability of the licensed warehouse proprietor when goods are released when only a fraudulent ATD is provided by the exporter.
Diversion of goods under Customs control generally occurs for a number of reasons. These include:
- no ATD for the goods exists;
- goods in quantities in excess of that specified in the ATD are released from the warehouse; and
- goods released from a warehouse are not accounted for at their destination.
If these problems are addressed, the likelihood of goods under Customs control being diverted should be significantly reduced.
To this end, prior to goods being released from the licensed Customs warehouse Licensed under section 79 of the Act), the existence of an ATD for the goods to be released should be verified with Customs. The warehouse proprietor should electronically check the validity of the ATD presented to them and that it is related to the goods to be released. Only if the goods to be released are the same as those reported on the export entry should the goods be released. Customs should also be made aware of this release at the time that it occurs for risk assessment purposes.
All data validation will be undertaken electronically by Customs systems with minimal impact upon the warehouse proprietor.
Goods under Customs control may be sent to either a CTO or consolidated for export. If they are to be exported directly, the ATD should be reported to Customs by the CTO (refer 3.1.2). If the goods are to be consolidated for export, this should occur at a Customs place, namely a licensed Customs depot (licensed under section 77G of the Act) so that the goods remain under Customs control.
When the goods arrive at the depot for consolidation, they should be reported to Customs by the depot proprietor. This will inform Customs of the location of the goods and the time that it took for them to arrive from the warehouse from which they were released. After the goods have been consolidated, their release should be communicated to Customs in the form of an acquittal of the submanifest number (CRN) that relates to the consolidation. The goods will then be sent to a CTO.
This option will allow Customs to track the movement of underbond goods from the warehouse to depot to CTO in real time and use this information for risk assessment purposes.
The current export entry thresholds vary for postal goods and goods exported as air or sea cargo. Postal consignments valued at $2000 or under do not require an export entry. Consignments exported by air or sea do not require an export entry if they are of a single statistical item (under the Australian Harmonised Export Commodity Classification) and valued at $500 or less. This current situation causes confusion, particularly with regard to air and sea cargo as the classification of the goods, in addition to their valuation, affects the entry requirements.
There is also confusion as to where the thresholds actually take effect. The postal threshold is for consignments exceeding $2000, ie, any consignments valued at $2001 and over require an entry. The threshold for air and sea cargo is for consignments exceeding $500, ie any consignments valued at $501 and over require an entry.
It has been repeatedly suggested that the current arrangements offer an unfair advantage to Australia Post, in that the cargo exported by them is subject to less stringent regulatory requirements than those applying to other segments of the export industry. This is of particular concern to the air courier industry , where types of cargo similar to that exported by Australia Post are exported by this industry.
Aligning the export entry thresholds for all cargo simplifies the export entry requirements for industry. It also allows Australia Post and the air courier industry, which have developed a service similar to that of Australia Post, to compete within the same regulatory environment. The new threshold for all cargo would be that any consignment valued at under $2000 would be exempt from export entry requirements, unless the consignment requires an export permit or licence; is subject to Customs or excise duty; or is subject to a Drawback claim or exported under the Tradex scheme..
Those consignments that require an export permit or licence will not be subject to the export entry exemption, ie, all goods requiring an export permit or licence will require an export entry. In addition, if the goods are subject to Customs or excise duty and that duty has not been paid, the goods will require an export entry, regardless of value.
This option will not have significant impact on Balance of Merchandise Trade statistics: advice from the ABS is that raising the export threshold to $2000 for air and sea cargo consignments will cause the loss of 0.3% of trade data by FOB value. This option will, however, significantly reduce the number of consignments reported to Customs by 22%.
As with the above option, there are benefits for industry in aligning the export entry thresholds for all modes of export. The need for reporting all cargo requiring an export permit or licence, or subject to Customs or excise duty, will also apply.
As consignments exported via Australia Post valued between $500 and $2000 do not require an export entry, and these goods would require an export entry under this option, it is impossible to determine the volume of consignments that would be captured by this option. Given that raising the air and sea cargo threshold to $2000 is deemed by the ABS not to have significant statistical impact, it would be reasonable to assume that this option would not have a significant impact either.
The low number of examinations will continue because of the lack of time at the wharf in which to examine the goods. This will hinder Customs ability to perform its functions under the GST legislation, namely to verify that goods destined for export are in fact exported.
The object of these powers is to confer powers on authorised officers to enter premises and examine goods that are reasonably believed to be intended for export. The powers are exercisable before the goods become subject to the control of Customs and are conferred for the purpose of enabling officers to assess whether the goods meet the requirements relating to exports. The powers are exercisable only with the consent of the occupier of the premises at which goods are situated.
The impact assessment for outwards manifests is based on the option of making use of cargo status reporting at CTOs and the post-departure lodgement of manifests (3.1.2).
CTOs will be required to communicate with Customs, whereas they are currently not required to do so. Depending on the size of the CTO and the type of cargo they handle (air/sea, containerised/bulk), they may be affected differently.
Sea and air carriers are required to lodge an outward manifest for their vessels or aircraft.
Export entries for goods delivered to a CTO may have to be lodged earlier than is currently the case to allow their admittance to the CTO. While most CTOs already require an ATD to admit cargo, there is still the potential for persons lodging export entries, ie, exporters and their agents, to be affected in the initial stages of the implementation.
The proposal does not require any more staff than is currently the case, as staffing resources used to screen export cargo, primarily Clearing Clerks, will not be required to screen manifests prior to clearance. The resources made available can therefore be applied to the risk management of goods reported by the CTO prior to exportation.
The development of the electronic systems by Customs is already accommodated within the budget of the Australian Customs Service.
(i) Cargo Terminal Operators
The proposal will require CTOs to communicate the Customs document number for the consignment or consolidation (eg, Export Declaration Number, Transhipment Number) to Customs when goods are received at the CTO gate. In order to account for the possibility of invalid numbers being reported, a second field (such as container number or air waybill number) would also have to be reported as a cross-check. Accordingly, there is the potential for greater data entry requirements by the CTO upon receival of export cargo. The transmission costs should be significantly reduced through the use of the Customs Connect Facility (CCF), which will allow communication with Customs via the Internet.
Many CTOs already communicate with Customs for the purposes of imported cargo, through Sea Cargo Automation (SCA) and Air Cargo Automation (ACA), so the infrastructure for CTOs to communicate with Customs should already be in place.
CTOs will not be required to turn cargo away if it does not appear to have an ATD.
(ii) Exporters and Agents
Currently, an ATD does not need to be obtained by an exporter until prior to the goods being loaded for export. Under this option, the exporter will need to lodge an entry and obtain an ATD prior to the goods being delivered to the CTO. This may require a change in business practices.
Through the use of status reporting at the CTO, Customs and its client agencies will be better placed to locate and identify goods for export and, if necessary, examine them. The use of post-reporting of outward manifests will ensure that the quality of data provided on these documents is of a higher quality and is more useful for statistical and GST purposes.
This is of particular importance given Customs role in GST compliance in relation to export goods. A reporting regime such as this is necessary for Customs to verify the exportation of goods for GST purposes and to minimise the diversion of dutiable underbond goods into the domestic market. Under current arrangements, this is not possible.
Carriers (airlines and shipping companies) will not have to provide an outward manifest to Customs until after the departure of the vessel or aircraft. This will allow them to make use of the manifests that they compile for their own business purposes (which is normally done after departure), rather than having to create a separate one for Customs.
(ii) Cargo Terminal Operators
CTOs will be aware of the status of the goods in their premises. In the cases where goods without an ATD are delivered to a CTO, a CTO may accept them but choose not to load them until the ATD has been obtained. This will reduce the likelihood of cargo that has no ATD being offloaded from a vessel or aircraft at Customs request, with the extensive costs usually borne by the CTO.
Electronic reporting should fit into current and future electronic initiatives considered by the industry, such as the use of transponders and electronic Export Receival Advices.
The impact assessment for exportation of goods under Customs control is based on the option of requiring the movement of those goods to be reported to Customs (3.2.2).
Customs warehouses (licensed under s79 of the Act) will be required to communicate the details of goods released from and accepted back into their premises with Customs.
Licensed depots (under s77G of the Act) will be required to communicate the details of goods accepted into and released from their premises with Customs.
Goods under Customs control will not be able to be consolidated at a depot other than a licensed Customs depot. This may have an affect on those depots that are not licensed with Customs.
Exporters will be required to consolidate goods under Customs control at a licensed depot. This may affect their current business practices.
Freight forwarders and other companies that arrange the consolidation of goods under Customs control will be required to consolidate goods under Customs control at a licensed depot. This may affect their current business practices.
Reporting the movements of goods to Customs will allow Customs to utilise its existing staffing resources more efficiently and effectively, so any increase in staffing costs would be due to an increased compliance effort.
The development of the electronic systems by Customs is already accommodated within the budget of the Australian Customs Service.
(i) Customs Warehouses & Licensed Customs Depots
While these premises are currently required to keep records relating to the goods that they accept, hold and release in accordance with Customs legislation, they are not currently required to communicate this information to Customs on a real-time basis. Costs may be incurred in the development of systems to allow these premises to communicate to Customs and through changes to current business practices. The transmission costs should be significantly reduced through the use of the CCF, which will allow communication with Customs via the Internet.
(ii) Depots, other than Licensed Customs Depots
The legislative requirement for goods under Customs control to be consolidated at a licensed Customs depot will provide these depots with a stronger position in this segment of the market. Depending on the importance of the consolidation of goods under Customs control to unlicensed depots, this may have an adverse affect on the business of these depots.
(iii) Exporters and Agents, Freight Forwarders and other Consolidators
The requirement for goods under Customs control to be consolidated at a licensed Customs depot will provide these depots with a stronger position in this segment of the market. This will reduce the choice of depots available to exporters, their agents, freight forwarders and other consolidators.
Customs will be able to maintain a greater level of control over goods subject to Customs or excise duty liability. By making the controls over the movement of these goods more effective, and by having access to information relating to the movements of these goods, Customs will be more able to prevent the diversion of underbond goods into home consumption and the resultant loss of government revenue.
There are currently insufficient controls in place to ensure that goods removed from a Customs warehouse are released with the necessary ATD. Goods are often removed without an ATD, or with an ATD that refers to goods other than those removed. This can lead to difficulties in determining which party (the warehouse proprietor or exporter/agent) is responsible for the duty liability in the event that the goods are diverted into the domestic market.
By communicating with Customs in real-time, warehouse proprietors will be able to determine whether or not goods should be released. As Customs will provide the warehouse proprietors with an approval to release or not in real-time, there should be less uncertainty over which party is at fault for releasing goods with an ATD.
(i) Customs Warehouses
Benefits arising from less uncertainty for liability of releasing goods without an ATD, as specified above, also apply to the proprietors of Customs warehouses.
(ii) Retailers of alcohol and tobacco
When goods are diverted from Customs control into the domestic market (usually tobacco products and spirits), a revenue liability to the Commonwealth is evaded. In doing so, the person in possession of these goods is able to sell them at a price significantly below the current market price. Accordingly, those proprietors who trade in goods on which all relevant Commonwealth revenue has been paid are at a considerable disadvantage in the marketplace. Law-abiding retailers of alcohol and tobacco would benefit from a reduction in the amount of diverted alcohol and tobacco in that there would be fewer retailers with an unfair competitive advantage.
(iii) Licensed Customs Depots
The legislative requirement for goods under Customs control to be consolidated at a licensed Customs depot will provide these depots with a monopoly on this segment of the market. Depending on the size of this segment of the market and the degree to which it is conducted in unlicensed depots, this may have a positive affect on the business of licensed Customs depots.
The impact assessment for export entry thresholds is based on the option of aligning them at $2000 for goods exported by air, sea and post (3.2.2).
Exporters or their agents are required to lodge export entries in order to export goods from Australia. A change in the export entry threshold may affect them.
Aligning export entry thresholds for goods exported by all modes of export will reduce the number of export entries by approximately 22%, however this will only reduce the total value of reported cargo by 0.3%. Therefore, while there will be little statistical loss from a reduction in the value of entries lodged with Customs, there will be a significant reduction in the number of entries lodged and hence the risk-assessment that may take place for export cargo. This effect can be reduced through the greater use of exempt goods information provided on cargo reports.
Export entries will still be required for goods under $2000 that require an export permit or licence or are subject to Customs or excise duty. Therefore Customs will still be provided with sufficient information to adequately risk assess these high risk goods.
(i) Cost to Business
(ii) Australia Post
Australia Post will be placed in a similar regulatory environment to the air courier industry, as exporters of goods valued at less than $2000 will not require an export entry, regardless of how the goods are exported.
Export entry data is transmitted to the ABS every night for the compilation of trade statistics. Fewer export entries will mean that there will be fewer transmission costs involved in Customs sending the information to the ABS.
(i) Exporters and Agents
Fewer export entries will be required for cargo exported via air and sea. This will impose a smaller regulatory burden on the export industry, reducing the number of export entries lodged with Customs by about 22%. This will reduce the cost and effort of exporters complying with government export requirements.
(ii) Air Courier Industry
The alignment of export entry thresholds to $2000 for all modes of export will allow the air courier industry and Australia Post to operate in the same regulatory environment.
Exporters (including owners, freight forwarders, customs agents, air couriers, slot charterers, export consolidators, shipping companies, airline companies, etc.)
It is anticipated that any costs incurred by the export industry resulting from examination of export goods at premises other than wharves or airports would be in the form of lost time and production as a result of providing access to premises and goods to Customs officers. However, it is believed that the benefit to industry will outweigh the costs. Export cargo can be examined at the exporters premises before the cargo is scheduled for delivery to the place of export. This will avoid delays and costs resulting from examination at wharves and airports where containers would have to be unpacked and repacked before the goods can be loaded onto the vessel or aircraft. It should also be noted that this power can only be exercised at the consent of the occupier of the premise where the goods are located.
Customs will be able to monitor and control export cargo better. Furthermore, statistics gathered on behalf of the ABS will more accurately reflect the current exporting climate.
It is not envisaged that there will be any impact from the proposed changes on general trade outcomes for Australia.
Discussions have been held with the ABS regarding the use of post-reporting of manifests. Their opinion is that, since they currently receive manifest information three days after acquittal (ie, departure) when the manifest has been finalised, there will be little, if any, negative impact from the post-reporting of manifests if this is done in a timely manner. Given that these post-reported manifests should be more accurate than those currently submitted, there should be less likelihood for inaccuracies and idle ECNs, thus enhancing the ability of the ABS to develop trade statistics from manifest information.
Original industry consultation arose as a part of the EXIT Evaluation 1997. This option is closely based on the CMR Business Model proposed by industry in late 1999. More recently, there has been consultation with specific focus groups as well as informal discussions with individual representatives of industry. The proposal for post-reporting of manifest is widely supported by carriers, while CTOs can see benefits in the proposal for status reporting.
The ATO is aware of this proposal and in favour of increasing controls on the movement goods subject to Customs or excise duty in order to reduce the possibility of loss of Commonwealth revenue arising from diversion of these goods into home consumption.
Original industry consultation was conducted as a part of the EXIT Evaluation 1997. Current industry consultation is ongoing.
Preliminary discussions have been held with the ABS regarding changes to the export entry thresholds. In terms of the statistical data that will be lost by increasing the air and sea export entry threshold, the ABS reported that if the threshold was raised to $1000, they would lose 0.1% of statistical data. If the threshold was raised to $2000, the ABS would lose 0.3% of statistical data. The ABS considered these to be insignificant amounts, hence the proposal to raise the threshold to $2000 will not be a significant issue for the ABS.
Original industry consultation arose as a part of the EXIT Evaluation 1997. More recently, there has been consultation with specific focus groups and informally. Industry widely supports the raising of the export entry threshold for air and sea cargo from $500 to $2000.
The proposals were discussed with industry during the series of national seminars in July and August this year. Industry did not appear to have any concerns, given that the proposed powers are consent based.
The conclusion is that the use of cargo status reporting at CTOs and post-departure lodgement of manifests is the preferred option. It will effectively provide Customs with the ability to identify and locate goods for export prior to departure for both Customs purposes (prohibited exports) and ATO purposes (GST export verification). It will also ensure that more accurate information can be supplied to the ABS for statistical purposes and to the ATO for GST compliance purposes.
The current measures used by Customs are ineffective for risk assessing goods for export and the collection of statistical and GST-related information.
There has been a greater need for identification and examination of export cargo under Customs responsibility to verify exportation of goods under the GST. The current arrangements are unable to sufficiently meet Customs needs.
The requirement of Customs warehouses and depots to report the movement of goods under Customs control is the preferred option. It will most effectively provide Customs with the ability to monitor, and intervene in, the movement of goods under Customs control. The measures currently in place are ineffective in preventing the diversion of high-revenue goods into home consumption.
The preferred option with regard to export entry thresholds is to align the thresholds for air, sea and postal cargo to $2000. While Customs will lose approximately 22% of export entry data, the increased amount and consistency of exempt goods information should assist Customs officers in the risk-assessment of export cargo.
The desired option for Customs is for these powers to be consent based. The objective is to confer powers on authorised officers to enter premises and examine goods that are reasonably believed to be intended for export. The powers are exercisable before the goods become subject to Customs control and are only exercisable with the consent of the occupier of the premises at which the goods are situated. They will assist Customs in fulfilling requirements on behalf of the ATO.