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Wednesday, 29 April 1987
Page: 2200

Mr BARRY JONES (Minister for Science and Minister Assisting the Minister for Industry, Technology and Commerce)(4.36) —I move:

That the Bill be now read a second time.

The Customs (Valuation) Amendment Bill 1987 proposes amendments to the provisions governing the valuation of imported goods in the Customs Act 1901. Those provisions are designed to give effect to the General Agreement on Tariffs and Trade Valuation Code, to which Australia is a signatory. The measures in this Bill are the first stage of the Government's two-pronged legislative attack against certain avoidance and minimisation practices used by importers in valuing goods imported into Australia.

By way of background, I should mention that the Australian Customs Service, with the aid of the Attorney-General's Department, has been conducting a comprehensive examination of the effectiveness of the valuation provisions in the Customs Act. That examination has brought to light a number of apparent loopholes and avoidance practices being exploited by importers. I should emphasise that we are not accusing all importers of engaging in avoidance practices. However, experience has shown that some importers have entered arrangements that are designed solely to reduce assessable Customs value and thereby reduce duty liability. The Government is therefore of the view that any opportunity for abuse must be removed as soon as it is discovered. Because of the need to protect the revenue and ensure delivery of correct tariff assistance to local industry, we have decided to correct the inadequacies in the Act that have been revealed to date. Because of the complexity of some of the arrangements, it is necessary that the amendments be done in two stages.

The first stage is covered by this Bill. We expect to introduce the second stage during the next sittings of the Parliament. The Government cannot tolerate deficiencies in the law which permit practices resulting in the erosion of the revenue and existing assistance levels. This ultimately places an undue burden on the Australian taxpayer, who has to make up the difference, and it substantially affects local manufacture and employment.

Let me demonstrate the known avoidance practices by several examples. One is a practice commonly known as transaction-splitting, whereby the importer pays part of the purchase price to an associated company of the vendor, ostensibly for services rendered in relation to the goods. Clause 4 of the Bill extensively redrafts key definitions of the Act designated to eliminate this practice. Further, it has been discovered that in cases where a price threshold affects the duty rate, some importers are combining transactions for two different types of goods. By price-averaging the two, some importers are succeeding in deliberately understating the true value of one of the goods, thereby minimising or avoiding duty. Clause 5 of the Bill is designed to stamp out this practice.

As another example, the examination has revealed that the deduction normally allowed for commission paid to the importer's buying agent is being manipulated by the misrepresentation of an alleged agency relationship, whereas the true picture is that the middle-man is in fact the agent of the vendor, or, in some cases, the vendor himself. Clause 6 (c) of the Bill will close this loophole by allowing only commissions paid to genuine buying agents acting solely for the purchaser to be deducted from the Customs value. Incidentally, the deduction of buying commission from the Customs value of the goods is required by the GATT Valuation Code.

Other amendments in the Bill tighten and clarify the existing provisions to ensure certainty in the valuation process. Clause 4 (d) proposes to restrict deductions from Customs value allowed in respect of purchasers' rebates, to those rebates which have actually been received at the time of entry of the goods. The Customs Act currently permits interest and any other cost or charge pursuant to a financing arrangement to be excluded from the value of imported goods. Clause 4 (f) amends the Act to provide that only interest paid under a finance agreement is to be an allowable exclusion, in accordance with the GATT Valuation Agreement to which Australia is a party.

Finally, the Customs Act provides for duties to be recovered as Crown debts. However, the current provisions restrict the time limit for the redetermination of values to 12 months. This Bill seeks to remove this limitation to facilitate the recovery of any duties owing through the use of schemes which misrepresent the true value. To arm the Australian Customs Service with the capacity to deal with the kinds of avoidance practices revealed by its examination, the Bill proposes at clause 9 the removal of the 12 month limit. The Bill also proposes certain other machinery amendments which are set out in the explanatory memorandum which has been circulated.

As indicated earlier, I give notice that the examination of valuation legislation is continuing and, as a second stage in the Government's strategy, we intend to introduce further amendments in the Budget sittings this year to eliminate any opportunity for avoidance or minimisation of the value of imported goods.

Financial Impact Statement

The financial impact of the practices I have just outlined is considerable. For example, by claiming a deduction for a buying agent's commission in respect of what is essentially the agent of vendor, it is estimated that one of the major importers has saved about $4m a year. If all the major importers adopted the practice, there would be a revenue loss of about $90m. Deductions allowed in respect of interest under a finance agreement already amount to about $40m. If the provisions are not tightened, the loss to the revenue could involve an additional $40m. By closing these and other loopholes in the existing legislation to eliminate known avoidance and minimisation practices, it is estimated that at least $146m will be saved on an annual basis. This figure includes an estimate of the sales tax component on goods collected by the Australian Customs Service on behalf of the Australian Taxation Office.

The effect of these practices on local industry has not been quantified, but it is obvious that any erosion of assistance levels by avoidance and minimisation practices can only be detrimental to local industry and employment. I commend the Bill to the House and present the explanatory memorandum to the Bill.

Debate (on motion by Mr Cadman) adjourned.