Expect increased customs audits in years to come
With the phased reduction of the Thai corporate tax rate from 30 % to20or 2013, the Government's revenues will be impacted significantly and other sources of revenues will be needed as a substitute.It is expected that more emphasis will be placed on customs duty/VAT collection by Thai Customs to supplement Government revenues. As a consequence, importers are likely to observe Thai Customs continue and even increase customs audit activity.
In light ofincreased customs audit activity, importers should ensure that they are fully prepared to handle any challenges which Thai Customs may raise. Common areas which are currently subject to challenge by Thai Customs include customs valuation, tariff classification andapplication of duty privileges (e.g. Free Trade Agreements). As an initial step in determining the potential exposure to customs duty/VAT, importers may want to consider performing a customs internal review/health check. Once such potential exposures have been identified, the importer can then determine the most appropriate course of action for addressing past exposures and also changing their position for future imports, if necessary.
Let's consider some of these common areas which may be subject to scrutiny by Thai Customs in more detail.
Thai Customs are obviously concerned about the value used as the base for calculating customs duty/VAT. If an importer is declaring an artificially low customs value to minimize customs duty, then this may be subject to challenge. Thai Customs may question the import price paid or payable, referred to as the transaction value, where it is influenced by related parties. In this case, it would be necessary for the importer to demonstrate that the relationship has not impacted the price. Another area of concern is ensuring that all relevant payments have been included in the transaction value. For example, any royalties or license fees which relate to the imported goods would need to be included in the customs value.
The customs duty rate will generally depend on the appropriate tariff classification for the imported goods. Determination of the appropriate tariff classification under the Thai tariff schedulewould commence with an accurate description of the imported goods. Importers should review the existing tariff classification codes for products imported into Thailand to determine the appropriateness of tariff classification and potential risks/opportunities.
Thailand now has a number of Free Trade Agreements (FTA) which provided preferential duty rates for goods which originated in one of the parties to the FTA. To obtain the preferential duty rates under the FTA, it would be necessary to present a relevant Certificate of Origin (COO) to Thai Customs. Importers should ensure that the COOs contain all relevant and correct information prior to submission to Customs Department. We have seen a number of cases where preferential rates have been denied due to incorrect completion of such COOs.
Where an importer identified an error through an internal review, then they may consider practicingself-disclosure of the import/export non-compliance to Thai Customs prior to the detection of such errors by Thai Customs during a customs audit. By self-disclosing the error and paying any additional customs duties/VAT, the importer should be able to avoid customs penalties which would otherwise have been imposed during a customs audit.
If during the internal review, issues are identified for which the application of the Customs laws and regulations is unclear, to address this uncertainty the importer may consider submitting a letter requesting acustoms ruling. For example, where the tariff classification of a specific imported item is not clear or an importer simply wishes to confirm its understanding, it is possible to submit a request for a tariff ruling.
In summary, importers should be aware that Thai Customs is likely to continue its aggressive customs audits. Waiting for a customs audit before finding out that there are customs exposures will expose the importer to custom duties and penalties. Taking proactive action through the performance of an internal review or health check will allow the importer to identify any issues and exposures up-front and to address such exposures possibly in a more cost effective manner. Preparation really is the best form of defence!
_ This article was contributed by Deloitte Touche Tohmatsu