Two sides of the Coin ：the institutional benefits and risks of customs reform

As an old saying goes, every coin has two sides. The new customs regulatory system, from the regulatory concept, customs clearance mode to law enforcement means, has the two sides of “strengthening supervision and simplifying procedures, maintaining security and promoting convenience, as well as preventing risks and improving sense of gain”. For enterprises, it is necessary to keep in mind the two-sidedness, and understand the various customs reforms that are in full swing, so as to talk about how to follow up, how to carry out risk assessment and decision-making response, so as to realize or enhance the “sense of gain” of enterprises

In recent years, around the reform of national customs clearance integration, the Customs has launched a series of policy documents and supporting systems that benefit enterprises and facilitate the people. The following is a brief introduction of representative systems.

1.Advance Declaration System

Advance declaration means that a consignor or consignee of exported or imported goods or a declaration enterprise entrusted by a consignee or consignor shall acquire the data on the bill of lading or the cargo manifest before declaring to the customs office in advance.

With the launch of “two-step declaration”, if the conditions are met, the two-step declaration superimposing advance declaration can realize to directly pick up the discharging import goods and the arriving export commodities. At the end of March this year, Shanghai, Ningbo, Shenzhen and other ports officially implemented the new operating mode of “direct pickup of imported goods shipside” and “direct loading onboard after arriving at ports”.

Institutional Profit: The new declaration operating mode plays an active role in improving the efficiency of customs clearance, reducing the demurrage time caused by customs clearance audit, and reducing the cost, especially for perishable,  refrigerated goods and other time-sensitive goods.

2.Pluralistic Tax Guarantee System

There are also many institutional innovations in the way of tax guarantee. Consolidated tax collection, in another word, “taxation after release, and consolidated tax collection”. Different from the one-bill-by-one-bill tax collection mode, under consolidated tax collection mode, customs offices may calculate and collect, on a concentrated and consolidated basis, the taxes incurred by multiple imports and exports conducted by the import and export taxpayers qualified upon examination during a certain period of time. The tariff bonds, is a kind of insurance in which the import and export consignee and consignor are the insured, and the Customs is the insured. The enterprise purchases the tariff bonds from the insurance company participating in the pilot project, and then handles the tax guarantee formalities with the Customs by virtue of the Tariff Bond Policy issued by the insurance company, so as to realize “taxation after release”. In addition, there are several alternative guarantee methods, such as general security for payment of taxes, credit enhancement guarantee for enterprises, electronic payment of customs duties and fees and so on.

Institutional Profit: If the pluralistic tax guarantee system can be used properly, it can play a positive role in reducing the cost of customs clearance and promoting trade facilitation. Enterprises can choose the appropriate way of guarantee according to their own actual situation, so as to make the best use of institutional profit, ease the financial pressure, reduce the burden of operation.

3.Voluntary Disclosure System 

Voluntary disclosure system is an important system for the Customs to promote the law-abiding and self-discipline of enterprises. The main content is that after the import and export goods are released, if the enterprise finds that there are unpaid, underpaid taxes or other conditions in violation of the customs regulations in the import and export activities through self inspection, and it voluntarily discloses this condition to the Customs in writing and accepts the penalty. As long as it meets relevant conditions, it can enjoy the corresponding “error-tolerance profit”. With regard to the procedures and requirements for identification and disposal of voluntary disclosure system, and in consideration of the feedback from all walks of life, the Customs has made further improvement.

Institutional Profit: Upon confirmation by the Customs, if the enterprise meets the requirements of voluntary disclosure, it can enjoy the corresponding “error-tolerance profit”. The profit mainly includes: a lighter or mitigated administrative punishment if violating any customs regulatory provisions, no administrative punishment if the violation is minor and corrected in a timely manner, and no damage is caused, .a mitigated or exempted overdue fine if the import or export enterprise or entity voluntarily disclosing their wrongdoings and making a supplementary payment, no records made in the Customs credit status of the enterprises if the enterprise voluntarily disclosing their wrongdoings and imposed a penalty of warning or fine less than RMB 500,000 by the Customs.

Tips: Voluntary disclosure involves the understanding and grasp of policies and regulations. It is suggested that the enterprise should go through internal discussion in advance and seek the opinions of professional lawyers.

4.Pre-Disposal of Imported Commodity Samples

From December 20, 2019, upon the application of the consignee of the imported goods, the Customs shall provide pre-classification consulting services for the goods to be imported by the enterprise -- limited to the goods with pre-assessment certificate of quality safety before shipment or the samples for legal inspection purposes.

Institutional Profit: Enterprises can make good use of such services, effectively reduce declaration errors and reduce the risk of non-compliance.

Tips: Similar services provided by the Customs also involve pre-determination of commodity classification, place of origin and price, which can be applied by the enterprise as the case may be.

5.Regulatory System for Processing Trade 

The regulatory system for processing trade under the new supervision mode is based on the credit management. The corresponding supervision mode is set up with the enterprise as the unit. For enterprises in the bonded area, the Customs has introduced a series of measures in streamlining and standardizing processing trade procedures and promoting trade facilitation. At present, the enterprises’ processing  trade supervision mode (for enterprises with a certification of average and above ) is being piloted.

Institutional Profit: Under the new mode, the regulatory procedures for processing trade are greatly simplified, the tax burden of enterprises is reduced, and the occupation of funds is decreased. In addition, the processing trade supervision mode of enterprises has further enhanced its advantages. In this mode, many enterprises under the same group are regarded as a whole for supervision. Processing trade goods can be stored independently among member enterprises under the same group; bonded materials of processing trade can be transferred among member enterprises within the group; non-evaluated equipment can be allocated and used among member enterprises; the whole process of outsourcing between member enterprises is free of guarantee. This mode will gradually expand the scope of its pilots. For an enterprise with a certification of average and above credit rating that have not chosen the processing trade mode for various reasons before, it can be re-evaluated whether to choose the processing trade mode based on the actual situation.

6.AEO Authorization

As mentioned before, under the new customs supervision system, many reform pilots and institutional profits have set access thresholds for enterprise credit rating. In fact, the level of enterprise credit rating has become an important factor affecting its comprehensive competitiveness in the domestic and foreign markets. Only with a higher credit rating can it enjoy most preferential management measures from the Customs and other authorities, carry out import and export trade smoothly, and show its advantages in the international and domestic market competition.

Institutional Profit: Generally speaking, the credit rating of a certification of average and above is the key for enterprises to maximize the policy dividend and succeed in the comprehensive competition. Enterprises shall strengthen the overall compliance management and strive to improve the credit rating.

Although the new regulatory system brings simplification of procedures and convenience of trade, please remember that the other side of the coin is “strengthening supervision, maintaining safety and preventing risks”. That is to say, there is a prerequisite for enjoying benefits and convenience. In fact, the new regulatory system puts forward higher requirements for the self-discipline management and compliance operation of enterprises.

1. Under the new regulatory system, the compliance obligations of enterprises are not reduced but strengthened.

Under the new supervision system, the audit of customs clearance has changed from “tandem type” to “one-time declaration and step-by-step handling”, and the work which was mainly in the stage of  customs clearance is pushed forward or backward. Accordingly, the rights, obligations and responsibilities of enterprises in different customs supervision links are also faced with system reconstruction. For example, the enterprises’ legal obligation of tax declaration truthfully, completely and accurately has been further strengthened. In the case of two-step declaration, the enterprise needs to declare to the customs whether the imported goods involve certificate, inspection and tax. If the goods themselves involve certificate, inspection and tax, but the enterprise chooses not to involve any of them in the summary declaration, it may be recognized as dishonest declaration by the Customs and punished according to the corresponding regulations.

2. The new regulatory system puts forward higher requirements for the risk prevention and control ability of enterprises.

Under the framework of national customs clearance integration, the audit mode has changed from decentralized audit by local customs to centralized and unified audit. The General Administration of Customs has set up the Risk Prevention and Control

Bureau and the Tax Collection and Administration Bureau to control the security access risk and tax related elements respectively, and the law enforcement standards are more consistently. Under the new mode, the Customs strengthens the application of big data. In terms of risk control, the Customs implements random inspection and control “two-wheel drive” precisely, and the supervision of enterprise risk are more accurate and efficient. All these changes mean that under the new situation,  enterprises need to pay more attention to their compliance obligations, and constantly improve their ability to prevent and control compliance risks, so as to prevent risks in advance.

3. The status of enterprise credit rating has become an important factor affecting the comprehensive competitiveness of enterprises.

The general principle of customs enterprise credit management is that the higher the enterprise credit rating is, the more benefits and conveniences it enjoys. Once it is identified as a customs discredited enterprise, the legal consequences are all-round and multi-field, not only in the customs supervision, but also in the functional areas such as tax, banking, industry and commerce and many other authorities and organizations; there will be serious adverse consequences for enterprises. The corresponding loss assessment is not only a single and tangible economic loss, but also intangible loss such as enterprise reputation, planning and development. In a word, under the new supervision system, the credit rating of enterprises has become one of the most important factors affecting the comprehensive competitiveness, which will have a comprehensive impact on the production and operation of enterprises.

4. The Customs will pay more attention to coordination and efficiency improvement in the follow-up supervision and case investigation.

There is no doubt that the Customs will strengthen the follow-up supervision, for example, strengthen the inspection and verification. In addition to the regular inspection, it will also carry out special inspection in key areas, key industries or commodities. The coordination within the various departments of the Customs interiorly, and between the Customs and other authorities externally will be further increased to jointly carry out comprehensive anti-smuggling management.

This year, the General Administration of Customs has deployed to continue the joint action of “national sword” against smuggling, focusing on the main tax-related commodities, agricultural products, solid wastes, wildlife products, etc. In a word, the Customs can achieve the goal of streamlining administration and delegating powers, strengthening regulation, and optimizing services by improving the follow-up supervision and case investigation.