This CSR report prepared together with experts from the Russian Presidential Academy of National Economy and Public Administration and the All-Russian Academy of Foreign Trade discusses existing problems in customs administration in Russia and puts forward systemic, radical measures aimed at improving the situation. The main goal of proposed changes is to improve the collection of customs duties and taxes and to increase the reliability of customs declarations while simplifying procedures and reducing the costs to business people.
Key shortcomings of the existing system of customs administration in Russia include:
- multiple stages of customs processing, each of which requires information to be provided and duplicated in various formats, including on paper;
- a lack of integration between the control functions of customs and tax authorities;
- forced retention of a company’s working capital in Federal Treasury accounts in the form of advances and cash collateral;
- substitution of the risk management system with a “tariff scale” (value risk profiles);
- poor risk analysis and management.
According to the authors, costly control practices are unable to guarantee reliability, create information gaps for fiscal control, while the focus on the inviolability of the existing processes precludes adequate responses to new challenges such as customs processing of goods subject to high levels of taxation in other EAEU member countries or significant growth in the import of goods without customs fees via Internet-based commerce.
Existing program documents are geared toward gradual improvement in Russia’s customs administration. At the same time, they also preserve unchanged the basic practices and business processes employed in customs organization and consequently its main problems.
The report identifies key areas for improving customs administration:
- transfer of control carried out for fiscal purposes to the stages preceding the import of goods and following their release for domestic consumption; gradual replacement of physical control of goods with analysis of information pertaining to them;
- establishment of end-to-end control over the movement of goods and transactions involving them from the time of import to final consumption or retail sales;
- separation of fiscal and non-fiscal control functions and their redistribution between control (supervising) authorities.
The proposed target structure of customs administration business processes is logically coordinated and to a certain extent intersects with the existing Federal Customs Service approach that more or less retains basic elements of the current customs administration system. The authors believe that instruments described in the report will help eliminate the shortcomings in the target business process structure for all participants of foreign economic activity (and not just for those considered low-risk). Up to a certain stage plans of the Federal Customs Service can develop in parallel with the changes proposed in this report and eventually form the basis for the introduction of a more systemic single mechanism of customs and tax administration.
Proposed changes are focused in the following areas:
1) Development of information technology. As a result, it will be possible to perform primary control before the import of goods and vehicles, importers will be required to submit preliminary declaration of goods in electronic form, and traceability data will be available for primary analysis of movement of the good through to the retail customer.
2) Updating the risk management system. Its purpose should be to ensure that goods conform to the information provided and recorded in declarations. The risk system must respond to “atypical behaviour” on the part of the carrier, importer, and other persons involved in the supply chain, as well as other indicators.
3) Development and implementation of the system of general financial guarantees that will cover obligations to pay customs fees for a given period as opposed to a one-time shipment. As proposed, the amount of the financial guarantee is to be calculated in advance, before the import of goods, based on contracts using decreasing or increasing coefficients.
4) Developing requirements for accounting or the commodity accounting system for customs purposes. Documentation of information about the importer and imported goods at checkpoints using data available to tax authorities will minimize risks of importer forgoing the obligations of customs processing and paying customs fees on imported goods because fiscal control system will already have information about foreign trade and other economic activities of that importer; this system will also receive information about a concluded transaction.
5) Cooperation between customs and tax authorities including consolidation of customs and tax databases (or ensuring they are connected in real time), development of new methods of customs and tax control for the purpose of aligning control methods, and transferring indirect taxation of imports to tax authorities subsequently followed by transferring the administrative functions of all customs payments to the Federal Tax Service. As a result, the control of imported goods and transactions therewith before retail sale will pass to tax authorities at the location where the importing company is registered.
6) Non-fiscal control measures. The transition to integrated control at checkpoints will require clarification of the functions of other state control authorities in order to avoid repetitive action and gaps within which none of the supervisory bodies are able to respond to violations.
7) Changing approaches to assessing the effectiveness of customs authority activity (KPI) by redirecting towards cost indicators for private sector and the state and efficiency in terms of accuracy of declarations and collection of customs fees.
8) Proper material and technical equipment of facilities with a view to transitioning to single integrated control by customs and other state authorities directly at checkpoints.
9) Personnel training and retraining.
10) Legal measures, including changes in EAEU legislation. A significant part of the proposed measures can be implemented on the basis of national legislation, provided it is clarified.
The authors of the report expect that implementation of the proposed changes will deliver the following results:
- reduced time needed to release goods;
- increased transparency of decisions made by customs authorities;
- reduced administrative costs for businesses (OECD can be used as the reference point);
- increased collection of customs and tax fees;
- reduced state spending on the organization of control.
According to the report, main risks include possible challenges to agreeing legislative changes both in Russian legislation and on the EAEU level, budgetary risks, and opposition from intermediary companies whose business will undergo a change.