The 2016/17 Federal Budget – EPBS scrapped and monthly duty deferral from 2017/18
The 2016/17 Federal Budget was handed down last night and as usual, buried away amongst changes to superannuation and minor tax breaks were decisions that are important for those involved in the import and export of goods. Top of the list for many will be the scrapping of the EPBS and the confirmation of duty deferral for Trusted Traders from 2017/2018.
Significantly, as of 7:30 PM on 3 May 2016, the Enhanced Project Bylaw Scheme (EPBS) closed. The EPBS provides duty free entry for goods associated with certain large capital projects. For very large projects the scheme was often more efficient than using tariff concession orders. It was no doubt more popular in an environment where TCOs were being narrowly applied.
The popularity of the EPBS is highlighted by the fact that the saving from the closure is projected to be $60 million a year. In other words, an additional $1.1 billion dollars of imports that will be subject to duty.
Real skill will be required in drafting TCO wording that in the current compliance environment will be wide enough to cover the variety of items imported for major projects.
Trusted Trader Funding – This is happening
For some there was a sense of déjà vu with the pilot of the Trusted Trader Programme. Many had been burnt investing in the pilot of the accredited client program a decade earlier. The good news from the budget is that $70 million over 4 years has been allocated to the Trusted Trader Programme. This confirms that the programme will move beyond the pilot stage and become fully operational.
The budget papers reveal that from 2017/18 importers that are trusted traders will be able to pay duty monthly, rather than per consignment. For some importers with large duty bills, the cash flow benefits of monthly deferral may be the carrot needed to entice involvement in the Trusted Trader Programme.
GST – Low value threshold
As previously announced, the GST low value threshold on imported goods will be removed on goods imported by consumers from 1 July 2017. Overseas suppliers with a turnover of $75,000 or more will have to register for, collect and remit GST supplied to consumers in Australia. However, the budget papers did not indicate that customs duty will be collected on these low value consignments. Further, the fact that GST will be collected by the overseas supplier, suggests that low value imports will still be able to be entered via SACs without duty or GST being payable at the time of import.
Duty increase on tobacco
Duty on tobacco imports is to increase by 12.5% a year. Illegal tobacco imports are already impacting the import industry and an increase in excise equivalent duty will only increase the motivation to smuggle tobacco. Brokers and forwarders will need to be especially vigilant to ensure that their services are not being used to facilitate the import of illegal tobacco.
The importance of this is highlighted by the fact that the Department's Tobacco Strike Team will receive an additional $7.7 million in funding and the Customs Act 1901 will be amended to increase enforcement options.
Brokers should be extra careful when dealing with first time customers importing goods where the alleged value of the consignment is exceeded by the cost of the freight. The first step towards compliance is ensuring you are dealing with a real person and the goods are being consigned to a real Australian address.
Impact of FTAs and other agreements
The Government has forecast that the Trans Pacific Partnership will result in annual reductions in duty of $60 million once implemented. Given both Trump and Clinton are strongly opposed to the Trans Pacific Partnership its future is at best uncertain.
Similarly, the implementation of the Information Technology Agreement is expected to see a $60 million reduction in revenue in 2019/20. This an amount that is more certain given the reduction will come in the form of reduced general tariff rates.
It is also noted that duty on textiles, clothing and footwear is expected to fall from $470 million to $310 million in 2016/17 and $260 million in 2017/18. This must reflect the impact of the China FTA. However, these significant falls will only occur if the China FTA has a much higher utilisation rate than other FTAs.
Taxation of multinationals
A host of tax breaks to small business and middle income earners are to be funded by pursuing profit shifting by multi-nationals. Profits shifted offshore will be slugged with a 40% tax. This may see a greater level of profits remaining in Australia. For multinationals that trade in goods, a means of increasing Australian profits is to reduce the sale price of exports to Australian related parties. If you become aware of price restructuring undertaken for transfer pricing purposes, it is important to consider the customs implications.
With Australian manufacturing of passenger motor vehicles ceasing in 2017, you may have thought that there would be no need for customs duty, a tax to protect local manufacturers. However, the budget forward estimates, which extend to 2019/20, still forecast annual duty of over $600 million on such imports. Given the various FTAs in place, most of this duty will be on European vehicles.
While many of the budget measures are speculative until after the election, we consider that most of the above issues will remain the same, even if there is a change of Government. We encourage industry to use the budget as intended, to enable those affected to plan and prepare for the future.
*Article produced by Hunt and Hunt and published 3/5
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