Why now is a good time to look into your customs and trade operations in Thailand

Companies normally don’t put customs compliance high on their priority to-do list unless their shipments get stuck at the port or unless customs officers knock on their door to carry out a post-clearance audit or investigation. 

When was the last time you had a closer look at your company’s customs operations? Are you over- or under-paying duties? Are there are any customs or trade compliance gaps?

Last year, customs did not meet its revenue target and its revenue even fell from the year before. And with applied duty rates continuing to drop as a result of companies using free-trade agreements, the Customs Department may decide to carry out more post-clearance audits this year to make up for last year’s deficit and to make sure they meet this year’s revenue target. 

During post-clearance audits, these would be some typical challenges to companies:

lTariff classification: Was the appropriate code declared in the import entry and thus the correct duty rate applied?

lCustoms valuation: Was the correct import price declared or was the price declared too low? Should the price declared be added to the royalty paid to the parent company?

lOrigin: Was the company entitled to the lower or exempted duty rate based on the origin of the goods or was a valid Certificate of Origin submitted for the goods?

However, there seems to be a recent trend where customs enforcement units are challenging companies more on less typical compliance issues. 

One issue is import-licensing requirements. Certain goods imported into Thailand are subject to restrictions and may require additional prior approvals or permits/licences. 

For example, certain medical devices require a Certificate of Free Sale or licence upon importation while certain chemicals and/or hazardous substances may be prohibited or subject to import licences. 

It may seem relatively straightforward to make sure you have the approvals or licences required before importing goods. But in practice it’s not always clear whether products are subject to certain import restrictions. The regulations governing restricted goods are complex and are usually subject to different interpretations, and different product types may be under different acts and regulations. 

Not having the proper import licence or importing prohibited products is currently subject to high penalties. There are proposals to possibly revise/reduce the penalties in this respect. Until then, the penalty for non-compliance of licensing requirements, when settled at the customs level, would be to surrender the goods or pay a fine equal to the value of the goods plus applicable duty and taxes. 

As audit settlement periods typically cover up to five years, the potential exposure may be significant.

Another potential area for future challenges could be the declared value of exported goods. A limited number of products are subject to export duties in Thailand, so traditionally, not much attention was given to what values were declared at the time of export. 

Given the recent focus by the Revenue Department on VAT refund requests for exported goods – following alleged fraud schemes on exported goods – the Customs Department also seems to be shifting its focus to the values declared upon export, especially where companies are claiming duties back upon export under duty drawback schemes, such as under the Section 19bis duty drawback scheme or tax compensation scheme.

Given the recent drop in its revenues, it is expected that the Customs Department will step up its efforts this year. More inspections upon clearance can be expected as well as an increase in the number of post-clearance audits or investigations. Also, more extensive audits with a wider range of potential non-compliance issues are expected. 

Waiting for customs to challenge your company’s compliance may be very risky, and your company may end up paying high penalties and fines. 

Carrying out an internal customs and trade compliance health check could be a good starting point and could put your company in a better position to lower any potential risks of non-compliance and penalties in the future. 

Not only would this equip you with information on your customs and trade operations and your compliance level, but this could also certainly help you prepare for the next customs challenge or audit that may be just around the corner.

 

NU TO VAN is a director of PricewaterhouseCoopers WMS Bangkok