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PRESS COVERAGE The Bottom Line Import chores made simpler and less costly with electronic in-house customs clearance Importing goods into Canada used to be an expensive and complicated process. That's when imported goods could only be accounted for by presenting completed documents at the customs office where the goods entered Canada. All customs duties and taxes also had to be paid at that office. RELIANCE ON BROKERS Because companies do not have convenient access to each port through which their goods could arrive, they were forced to rely on customs brokers and their representatives, who prepared and submitted documents and paid duties and taxes. Today, importers have access to a variety of facilities and initiatives that make customs clearance less complicated than other routine business functions, like invoicing. For example:
In light of these opportunities, many importers are taking control of their own customs clearance procedures. The result is cost savings and increases in efficiency. For example, consider the instance of a manufacturer of engine components, which saved more than $160,000 within 12 months of bringing its customs clearance in-house using electronic filing. The company's department consisted of one clerk and a manager. Before they adopted in-house clearance, the department was responsible for giving their customs broker required information, checking the broker's entries and invoice, and preparing refund and drawback claims. Drawback claims in the amount of $78,000 were filed twice a year. With shipments from U.S. suppliers totaling approximately 2,000 a year, the company had negotiated a broker fee of $35 per shipment. On the company's behalf, the broker submitted customs accounting documents and made duty and tax payments, which averaged $75,000 a month. The broker invoiced the company weekly for service and financing charges, as well as for duties and taxes accrued. An audit revealed two areas within the customs department where money was lost. MISCLASSIFICATION COSTS MONEY The audit uncovered $30,000 in refunds due to incorrectly classified goods, which amounted to more than three per cent of the annual import duties and taxes paid. The audit also found the company was filing only 65 per cent of its eligible drawback claims, despite the fact that half of its sales were to U.S. customers. One reason given for this discrepancy was that the company's customs staff were forced to prepare their drawback claims manually, without direct access to the database of their import activity kept by their broker. In her search for a solution that would ensure correct classification of goods and efficient access to data for drawback claims, the customs manager evaluated the option of bringing clearance in-house by using the electronic filing initiatives offered by Revenue Canada. This allowed customs to build up its own specialized product database. The customs staff who know products better than any third party, could use this database to ensure the most advantageous classification was used every time. Using an electronic filing system, the company could submit its own documents while simultaneously capturing the information needed to do their drawback and refund claims. This facility prevented eligible drawback claims from being overlooked. IN-HOUSE CLEARANCE SAVED PILE A cost-benefit analysis showed that in-house clearance would result in savings of $160,000 a year. The in-house clearance transition process started by company officials spending several hours completing the appropriate government applications. While waiting for these applications to be processed, the company bought and installed a rule-based customs compliance software system. The customs department started using the software system to check their broker's entries. They started catching duty and tax overpayments not normally recovered until the yearly audit. At the same time, the company built its own product tariff database and was able to increase the value of drawback claims by 35 per cent through automatic tracking of eligible items. Because claims took less time to prepare using an automated system, they could be filed more often. In this case, increased filing of drawback claims improved cash flow by $2,500. When they were ready to begin in-house clearance, the customs manager continued using a third party, but only to present RMD's – the minimum documentation required for shipments from suppliers who cannot provide customs documents. Currently, about 50 per cent of the company's shipments require the presentation or RMD packages. The company's customs department took control of the task of preparing-and electronically submitting by CADEX-accounting entries for all their shipments. At an average of eight entries a day, these additional tasks took approximately 90 minutes. The savings experienced are typical of many companies that have adopted in-house clearance by using the technology available today. To convert to in-house clearance, a company must first obtain an account security number from Revenue Canada. This number is used to identify importers in all bonded transactions with Revenue Canada and makes up part of the transaction number that identifies each shipment. The company must then post a security bond. The bond ensures Revenue Canada that duties and taxes accrued when goods are released will be paid at the end of each month. When posting the bond, the company should submit a request for central payment privileges. Central payment allows importers to pay duties and taxes at a single customs office of their choice, regardless of where the shipments entered Canada. MONTHLY PAYMENTS POSSIBLE It also permits payments to be made on a monthly basis, rather than making a payment every time a shipment arrives. Finally, the company should submit an application to become a CADEX participant. CADEX is Revenue Canada's electronic data interchange system, which allows importers to file the customs accounting documents electronically. Because it can take two to three months to install the dedicated telephone line and modem that Revenue Canada provides free of charge, it is wise to begin the CADEX application as soon as possible. By the time the CADEX line and modem are installed, the company will have had time to prepare staff for conversion to in-house clearance. While the savings and benefits of electronic filing are substantial, Revenue Canada has more initiatives in store for participating companies. Admitting that the current method of accounting for imports on a transaction-by-transaction basis is like asking retailers to remit GST separately for each sale they make or asking companies to submit a separate income tax return every time they receive any revenue, National Revenue Minister Otto Jelinek is committed to making electronic filing "a part of history". Companies that file their customs documents electronically will be able to submit an import summary on a periodic basis, just like they do with GST and income tax accounts. Revenue Canada also plans to expand the current GST offset system to include customs offsets. Companies will be able to combine their import duties and taxes (GST) with their regular GST account to arrive at a single payment or refund. |
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