I am attending the annual conference of the NZ Customs Brokers and Freight Forwarders (CBAFF) at which I have been allocated a speaking spot to discuss progress with the development of the new NZ Customs Act. Which is extremely fortuitous as the NZ Customs Minister and the NZ Customs Service have just released details of the shape of the new NZ Customs Act as has been approved by the NZ Cabinet.
It seems to be the season for new legislation with our new Biosecurity Act commencing on 16 June 2016 (16 – 6 – 16).
Need for a new Act
Unlike Australia where our Customs Act has been groaning under the weight of new and complex legislation being squeezed into a shell developed in very different circumstances in 1901, the NZ Customs Act has been through a number of versions starting with original 1913 Act and moving through revised versions from 1966 and 1996. However even with amendments made to the 1996 Act, the NZ Customs Service formed the view that wholesale changes were required to ensure that the Act remained current with appropriate form, language and regulation.
Engagement on concepts to be contained in the new Act
NZ Customs then undertook an extensive engagement process with industry stakeholders including CBAFF with the purpose of seeking feedback on the principles underlying the new Act. This has included publication of a comprehensive discussion paper setting out proposed changes and seeking comments on over 100 questions. In addition there have been workshops with industry stakeholders and separate engagement on issues not contained in the discussion paper such as access to the electronic reporting system in NZ's Joint Border Management System (JBMS). I have been fortunate enough to assist CBAFF in this process drawing on experience in practice and in advising the CBFCA, ECA and the FBIA on development of legislation ranging from our Customs Act through to other legislation and regulation adopted by other border agencies.
Release of information on the terms of the new Act
All that work has culminated in the NZ Customs Minister and NZ Customs releasing details on the nature of proposed changes to be included in a new NZ Customs Act following Cabinet decisions. The Minister provided an outline of the changes in her speech with more details of the new legislation together with submissions included in a "Submissions" document along with relevant Cabinet papers on the website of NZ Customs at www.customs.govt.nz.
The new Act will include a number of new and "contemporary" provisions consistent with the requirements of a border agency such as expanded arrangements for the collection and sharing of personal and confidential commercial information with other agencies in NZ and overseas, additional powers for NZ Customs, the ability for the Act to operate in contiguous areas as well as provisions allowing the exercise of powers of NZ Customs by officers of NZ police and defence forces. There are also new provisions regarding the movement of goods and operation of licensed premises in Customs Controlled Areas (CCA) including the introduction of a "fit and proper" test for those working in the CCA.
Significant developments on regulation under the Act
However, at the risk of missing some issues more relevant to some parties than others I thought I would summarise the new provisions which are most likely to have an impact on those in the supply chain as including the following.
- The legislation will be "principles based" with an introductory purpose statement and framework of provisions in the new Act but with a significant amount of the detail to be included in delegated legislation and regulation to enable more flexibility in developing and changing the regime. The Government agreed with submissions that this process needed to be transparent so that the new Act will include requirements for consultation on the development and amendment of the regulation as well as publication of the delegated legislation and regulation.
- The new Act will allow for commercial documents to be held overseas or in the "cloud" as opposed to needing to be held in NZ, which has been an issue for Australian and other overseas companies importing and exporting in NZ who had previously been required to put into place arrangements to make available in NZ those documents required by NZ Customs. However the ability to do so is subject to the approval of NZ Customs which can impose those conditions which it deems appropriate to such alternative storage. Again, this largely reflected the position take in the CBAFF submission. Most importantly, in a manner consistent with the Australian Customs Act, parties will be obliged to produce commercial documents when required. There will also be penalties for those in breach of the conditions including terminating these arrangements.
- The valuation of goods for import will continue the current practice of excluding international freight and insurance from the valuation of goods in a manner consistent to current NZ (and Australian) practice. There was agreement that a change to the current process would create confusion and could increase the value of goods for duty and therefore the amount of duty collected.
- In accordance with WCO practice the "export sales" transaction will be defined to be the "last sale before arrival in the importing country". This may have an impact on import and supply chain practices as the "on – sale" of goods "on the water" between departure from the country of export and arrival in NZ will need to be taken into account which could, of course, increase the customs duty payable.
- Generally in accordance with the proposal of NZ Customs and support from Industry stakeholders, the CEO of Customs will be granted an explicit statutory discretion whether to recover customs duty and if not, on what conditions. This is a significant development and a divergence from the position of the Australian ABF. From my perspective and that of CBAFF the grant of such discretion (subject to clear guidelines) is one of the most important issue arising from the reforms to be contained in the new Act.
- In another important development supported by industry the Act will allow for the payment of customs duty on a "provisional" basis where there are regular changes made to the customs value of goods post importation. However this is only available where there is an Advanced Pricing Agreement in place, where transfer pricing adjustments are made and the proposed provisional payment is approved by the CEO of Customs.
- There will be 26 changes to general penalty provisions, with 21 increases to the maximum liability, Four changes to cover differentials between individuals and corporations and one increased term of imprisonment for defrauding the revenue from 6 months to 5 years
- As anticipated, Petty Offences are to be replaced by an Infringement Notice Scheme to align with the 2008 Guidelines for New Infringement Schemes although details will be developed in regulations as to the offences for which the INS will be available and how it will operate.
- In terms of administrative penalties, many will be reduced such as for lack of reasonable care (penalty reduced from $50K to $25K) and gross carelessness reduced in the same way. The maximum penalty for errors and omission made with knowledge is maintained at $50K. For the first time, penalties will be expanded to exports.
- The "additional duty" regime is to be replaced with a modern sanctions regime which will distinguish between compensation and penalties and between a shortfall payment and a late payment. The regime will include a cost effective voluntary disclosure arrangement with interest to be paid on unpaid amounts. Interestingly, there will also be compensation for disadvantage caused by Customs error.
- Outside of the Discussion Paper and questions issued in 2015 there has been additional consultation with stakeholders on measures being introduced to control access to the JBMS by way of requiring a competency standard. The aim here is to improve the quality of information being submitted into the JBMS. Although there are no licensing requirements for service providers reporting to NZ Customs, the new "competency" requirements will operate to impose standards and enable the suspension or cancellation of rights of access (which will be subject to appeal).
If I had one request to add in response to the changes it would be to request the inclusion of a "moratorium" period following the introduction of the new Act and regulations to accommodate what will be some understandable "teething problems" for those dealing with the new provisions.
An excellent process – with more to come for NZ Customs and industry
The items set out above are merely the "highlights" of those issues raised with industry stakeholders and which may have a direct impact on their operations as well as having an impact on their customers as the importers and exporters. There will need to be careful thought as to measures to be adopted and new protections required including new types of insurance. In addition there will be ongoing engagement between NZ Customs and industry on the terms of the new Act itself and associated delegated legislation including which current provisions will also go into the new Act and how that Act will be formed and drafted. I look forward to continuing to assist the CBAFF in terms of advice on the proposed new Act and regulations as well as their implementation. That will also include ongoing work with NZ Customs which has conducted an impressive programme of consultation. I have been involved in many engagement and consultation processes in Australia and internationally and I can safely say that the process followed here is an exemplar of how such processes should be conducted.