Saturday, July 24, 2021


To disclose or not to disclose?

Nu To Van Partner, Tax & Legal – Global Trade Advisory Deloitte Thailand Tom Cachet Manager, Tax & Legal – Global Trade Advisory Deloitte Thailand

After a year completely disrupted by the Covid 19 pandemic, there were some indications by the beginning of 2021 that Thai Customs had picked up their audit activities on importers, most likely to make up for the limited controls on imports that preceded and in search of foregone duty and tax revenue.

Companies, which are audited by Customs, are at risk of having to pay back duties and VAT together with fines, penalties surcharges in case of non-compliance issues.

However, by April of 2021, a third Covid-wave hit Thailand and Customs decided to scale back their enforcement activities in an effort not to place an undue burden on companies already suffering from the pandemic.

To disclose or not to disclose?

Temporary incentives for self-disclosure of non-compliance to Customs

Instead, incentives are being made available to companies to self-disclose non-compliance issues with duty and tax exposures. The One-Stop-Service for Additional Duty Payment (One-Stop-Service Program) already allows importers to disclose self-identified import duty/VAT shortfalls centrally to Customs Headquarter. As long as the importer can prove that there was no intention to evade duties, Customs would waive the customs fines. This program still runs until 30 September 2021.

In addition, a new Ministerial Regulation was released on 28 May 2021 to reduce monthly duty surcharges to 0.25% of any outstanding duty payable for those companies making a self-disclosure to Customs. Duty surcharges are calculated monthly on top of the duty shortfall amount, which is either detected by Customs or self-disclosed by the importer, from the date of import/export until the date of payment (but capped at the total amount of duty shortfall). Normally, duty surcharges range from 0.25% to 1%, depending on when payment is made. However, under the new Ministerial Regulation the percentage is fixed at 0.25% regardless how far back the import/export is dated.

The duty surcharge reduction is a temporary relief measure in response to the lingering Covid situation in Thailand, and applies from 1 June until 30 September 2021.

By promoting both a waiver on customs fines and a reduction of duty surcharges in case of a self-disclosure, Customs is making an attempt to convince companies to independently come forward with any self-assessed non-compliance findings. This will still allow them to secure some duty revenue despite not being able to conduct their usual audit activities. Now may be the time for companies to seriously consider taking them up on their offer. After the relief measures expire on 30 September 2021, and if the situation allows it, Customs is expected to increase their audits once again.

What to look out for?

Some of the typical non-compliance issues that Customs assessed companies for before restricting their audit activities were related to the use of Free Trade Agreements (FTAs), payments of royalties and declaration of tariff code (HS codes).

Importers who make use of FTAs to obtain import duty privileges must present to Customs a Certificate of Origin (CO) issued in the exporting country. Thai Customs is known to rigorously verify whether COs have been completed in accordance with FTA guidelines and are consistent with other submitted customs documentation such as the import declaration, invoice and bill of lading. If any errors or inconsistencies are detected, the duty privileges are usually denied. One area that has caught Customs’ recent attention was related to FTA imports that involved multiple party sales transactions and “breakbulk” transactions in an intermediary country where a regional distribution center is located.

Currently, these kind of transactions are only allowed under the ASEAN FTA. Using the same kind of transactions under different FTAs are currently not allowed in Thailand and can lead to claw back of duties and taxes together with fines and penalties for historic shipments.

Another area is related to the declared value of imported goods. During audits, Customs normally reviews whether any additional payments (e.g. for royalties or license fees) were made on top of the price of the imported goods. In case Customs views that these payments should be dutiable, Customs will reassess the original declared value and claw back duties with fines and penalties.

Finally, tariff codes (HS codes) have traditionally been a hot target area for Customs challenges given the ambiguity of the classification system and the possibility for Customs to opt for codes which would normally attract higher duty rates. Companies must review whether they have been declaring tariff codes that can be defended in accordance with the customs classification rules and if not, consider whether to make a change and disclose past mistakes.

What’s next?

Given that Customs has temporarily decided to scale back their enforcement activities, companies are encouraged to conduct an internal review of their company’s import/export activities to determine whether they have complied with customs rules and regulations or not and identify potential risks and exposures. If any significant non-compliance is identified, it may be worthwhile to make the self-disclosure to Customs before 30 September 2021 to mitigate the potential financial exposure in the future and close the issue.

On the other hand, companies must keep in mind the possibility that following a self-disclosure Customs could expand investigations into other customs issues. Therefore, companies must have a clear picture of their customs risk areas and exposures before deciding to proceed with the self-disclosure.

With only limited time before the self-disclosure incentive programs close, now may be a good time for companies in Thailand to start reviewing their import and export activities.

Published : June 28, 2021