Rethinking the Customs and Excise Act - A step in the right direction

Tax Alert - April 2015

In broad terms, New Zealand Customs (NZ Customs) Minister Nicky Wagner describes the role of NZ Customs as being to protect our borders, facilitate trade and travel, and collect Crown Revenue.  This very important function is however made difficult for NZ Customs to enforce and for businesses / individuals to comply with as the current Customs and Excise Act is somewhat outdated and still contains elements of the 1913 Act.

It is therefore very pleasant to see the release by NZ Customs of a draft discussion document to refresh the current Customs and Excise Act 1996 (CEA).  NZ Customs is considering refining and modernising many of the sections of the CEA which have become outdated in today’s complex supply chains and digital era.

The full discussion document can be found here.

NZ Customs proposes to transform the CEA from prescriptive to principles-based legislation.  This will, amongst other things, entail shifting the procedural and operational provisions from the CEA to Regulations, Rules and Schedules.

Currently the discussion document contains open-ended questions and comments proposing to introduce amendments based on the feedback that will be received on various issues from stakeholders.  This is a great opportunity for businesses to come forward and discuss problems or obstacles that businesses are facing when dealing with NZ Customs and for businesses to make submissions in respect of any issues that they would like NZ Customs to address.

NZ Customs have invited submissions on or before 1 May 2015.

We have provided you below with some of our thoughts on aspects of the discussion document:

Valuation of imported goods

Value of goods

Currently the Customs value of imported goods is calculated with reference to the ‘Free on Board’ (FOB) value excluding the international freight and insurance incurred from the port of export to the country of importation.  GST on the other hand is calculated on the ‘Cost, Insurance, Freight’ (CIF) value of the goods which is the FOB value plus international freight and insurance.

NZ Customs have requested feedback as they are considering aligning the two calculations to CIF for determining the payment of Customs duty and GST.

We consider that the alignment of the values to CIF for the payment of Customs duty and GST may resolve some compliance issues for the importers, but may trigger wider problems, for instance:

  • This will be inconsistent with the principles established under the General Agreement on Tariffs and Trade which provides for levy of Customs duty on the FOB value of goods up to the port of export.
  • ­Customs duty will be levied on a higher base which will differ depending on the mode of transportation of the goods being by air or ship.
  • ­The Free Trade Agreements that promote low duties on cross-border transactions will likely be seen as being incidentally transgressed.

In our view, the computation of Customs duty on FOB basis should be maintained in view of the broader scheme and principles of Customs valuation.

Sale for export

The term ‘sale for export’ is currently not defined, however it generally refers to the contract that provides for the export to the country of importation.  It is however not unusual for goods to be the subject of a number of sales of which all are destined for New Zealand, especially in the supply chains for multinational companies.  Currently, NZ Customs allows the importer to choose which sale for export to use when there is more than one sale.

NZ Customs is proposing to define the sale for export in a way to prevent the importers from using the ‘first sale’ (and generally the lowest value) as the sale for export.

A narrow definition of sale for export is likely to be problematic for some importers with complex supply chains in place. 

Import GST

Currently GST is levied on importation of goods into New Zealand by NZ Customs.  GST registered businesses can then claim the GST paid at the time of importation of goods through their GST returns. The reporting times and payment dates for Customs and Inland Revenue do not currently align, causing cash flow issues for some businesses and additional compliance costs to importers with no benefit to NZ. NZ Customs have invited feedback from businesses to indicate practical difficulties experienced by them.

We suggest it would be worthwhile for NZ Customs to consider the Customs mechanics operating in other jurisdictions, for instance, Australia where GST registered businesses which are engaged in importation activities are not required to physically pay GST at the border.  The GST payable on importation is offset against the GST claimable through the GST return, thus no actual cash is required to be paid.  NZ Customs could explore the possibilities of implementing a similar model in New Zealand provided the legislative framework and policies (including for GST) are amended to support it. 

Business Records

It is a welcome proposition to allow the Customs business records to be stored offshore.  Inland Revenue already allows companies to store their records offshore for income tax and goods and services tax purposes.  Customs legislation should take into consideration the world moving towards cloud-based storage of records.  The extra havoc in arranging the storage of records at a broker’s place where the non-resident importer companies do not have a fixed place of business can likely be dispensed with.


Customs is proposing to review the financial and imprisonment penalties in the CEA.  The current criminal penalties are less harsh than the administrative penalties.  We expect that Customs will likely overhaul the penalty provisions.  Businesses should watch this space carefully as, going forward, the application of penalty provisions is likely to become strict. 

NZ Customs is proposing to extend the administrative penalties to all export entries.

In many instances, NZ Customs incur administration costs for amendment of entries and processing of voluntary disclosures.  NZ Customs is proposing to recover its costs in these cases.

Excise and excise-equivalent duty

Customs is considering aligning the excise return filing periods with the GST filing frequencies.

Other Proposals

  • ­Customs is considering revising the timeframes for providing information to NZ Customs given there has been advancement in technology and digitalisation.  For instance the timeframe to submit an import entry is currently 20 days before the arrival of the vessel.  This is likely to be reduced to 2-3 days so as to enable the import entry to be submitted shortly before arrival of the vessel.
  • Feedback is invited to consider extending the refund of duty to importers currently unable to claim a duty refund when returning undamaged goods (for instance wrong size).  Similarly there is a proposal to extend drawback where duty-free products are sold to overseas travellers.
  • The proposal to incorporate provisions enabling information sharing with other government agencies such as Inland Revenue, Ministry of Business, Innovation and Employment, Ministry of Justice, etc.  Currently the basis for sharing information with other agencies is unclear.
  • There is a proposal to explicitly incorporate a provision in the CEA to provide discretionary power to the Comptroller of Customs to make management decisions in the collection of tax revenue.
  • Improvements in the assessment and appeals process.

There is substantive work for NZ Customs in shifting the prescriptive provisions to the delegated legislation i.e. the Customs and Excise Regulations and Orders in Council from the legislation. This is certainly a beneficial move enabling expedited amendments to the delegated legislation which do not necessitate passing through the standard consultation process. 

It is also worthwhile for NZ Customs to work through the Customs policy and procedural models prevalent in other jurisdictions including Australia, Canada, UK, etc. and look to adopt some successful measures workable within NZ Customs framework.  NZ Customs have set a very strict timeline for introducing the new legislation which is proposed to be effective by early 2017.  There is considerable work yet to be done in drafting the legislation once the submissions are received by 1 May 2015.  We hope to see a considered draft rather than rushed legislation.

Key issues not in discussion document

  • Low value import thresholds.  Physical goods bought online and below the low value threshold of $400 are generally not subject to GST, if no Customs duty is applicable. Recently there have been media articles around proposals to impose GST on imported digital products and services as GST is not currently charged on imported digital products such as music and films downloaded from services including iTunes.  NZ Customs is not reviewing the low value threshold which is clearly out of scope of the discussion document.  There is a separate OECD study in relation to GST on digital goods and services jointly worked on by Inland Revenue and NZ Customs.  We may expect some changes soon.
  • No framework for providing the ability for Customs to provide certainty to importers through rulings and/or binding rulings.
  • Aligning Customs valuation methodologies with methodologies acceptable to Inland Revenue.
  • Formalising the voluntary disclosure process specifically in respect of transfer pricing adjustments.
  • No framework for a Trusted Traders Scheme.

For further information, please contact your usual Deloitte advisor.

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