LFMI has carried out an analysis of the main problems pertaining to the application of customs duties and procedures in Lithuania. A summary of the analysis follows.
The main document regulating customs procedures is the Customs Code, which defines the customs system as well as procedures and operations performed by customs offices. Apart from the Customs Code, customs procedures are regulated by government decrees (e.g. “On the confirmation of the interim procedure of customs appraisal,” “On the procedure of tax payments at the customs,” “On the confirmation of the procedure of ensuring the meeting of debtor liabilities to the customs,” etc.) as well as directives issued by the Customs Department and the Finance Ministry.
Although the Customs Code and government decrees abound with regulations of directive nature, they fail to ensure a proper protection of the rights of economic entities and private individuals, while granting too much freedom and discretion to the customs. In addition to that, legal acts regulating the work of customs offices are intricate, ill-defined and full of exceptions.
Problems and Solutions
Customs valuation of goods
If customs duties are applied, they must be charged on the price of goods. This is required by the essence and logic of customs duties as well as by the international practice and conventions. However, when customs duties are calculated, the actual price of goods is often ignored. Instead, directive valuations take precedence. The long-awaited abolition of minimal customs valuation prices did not eliminate all problems related to the customs valuation of goods. In many cases customs officers include in the customs value of goods VAT that was calculated and repaid abroad. Customs duties are also levied on goods that are obtained free of charge, such as stalls or company brochures. Such practices result in the application of unfairly high customs duties. It is necessary to establish an explicit requirement to use the transaction value of goods in calculating customs duties if written documents indicating the transaction price are provided.
Recognition of prices of goods and price discounts
Customs regulations require that the price of each individual commodity be indicated separately, even if different goods were purchased and paid for in one transaction and such dividing of goods would not change their customs value. Such requirements are unjustified and inexpedient.
Equally defective is the treatment of discounts in determining the customs value of goods. The regulation of price discounts is outlined in the instructions issued by the Customs Department to territorial customs offices. According to these instructions, customs office may recognize only discounts that are “normally” used in commerce, while decisions regarding larger or other kinds of discounts are left to the discretion of customs offices. Lithuanian customs also require that any discounts be verified by separate documents. In this way the norms established in the Customs Code are expanded to the detriment of economic entities, creating an atmosphere of complete instability and preventing the use of the transaction price in appraising the customs value of goods. Importers are forced to request their foreign partners either to sign separate documents on discounts or not to mention discounts in the transaction documents, indicating only the final price paid. To prevent this, customs offices should be required to take into account the final price paid for goods, provided it is properly verified, and to recognize all kinds or amounts of discounts.
Customs offices require original documents for any goods crossing the border. In many cases it is hard, inconvenient or altogether impossible to comply with this requirement. Therefore, customs should accept both original documents and their copies provided the applicant has confirmed that they are genuine. The Customs Code should provide a detailed list of all documents required at customs.
Whenever there is contradiction between established regulations and discretionary powers granted to customs offices, decisions are made in favour of higher customs duties. For example, if, in determining the amount of customs duties, there is a need to compare the price of commodities with “similar” goods, more expensive equivalents are usually used. The Customs Code should stipulate that any regulations should be interpreted, and duties charged, in a way that is more favourable for customers.
Guaranteeing customs liabilities
The Customs Code provides for the application of guarantees as a means of securing customs liabilities. The Civil Code defines a guarantee as an instrument of securing liabilities whereby the guarantor is financially liable for discharging the debtor’s liabilities in case the debtor fails to meet them. However, the Customs Code and relevant government decrees define a guarantee as (1) a warranty (although in the event of a warranty the guarantor and the debtor share the liability) or (2) a money deposit (although it is an unusual instrument of guaranteeing liabilities). The Customs Code thus distorts the traditional terms, while the regulations applicable to guarantees are unfavourable to business entities and provide an open invitation to voluntarism.
Guarantees for securing debtor liabilities to the customs must be applied in accordance with the definition prescribed in the Civil Code. Any bank, insurance institution or other entities authorized by the government may issue a guarantee. Guarantees must be accepted from all individuals and in all cases. A list of business entities that are not required to provide guarantees should be formed automatically according to established criteria rather than decisions of a particular institution. Customs offices should have no right to demand additional guarantees that are not envisaged in laws or to question the adequacy of a guarantee.
Exaction of taxes
Customs offices have a right to withdraw, at their own discretion, money from a company’s account if it fails to pay VAT or other taxes on time. To prevent such voluntarism, before deducting money from companies’ accounts, the customs should be required to obtain a company’s written consent or at least to notify the company about such proceedings.
The procedures for tax rebates are ill-defined, complicated and time-consuming. In addition to that, decisions regarding tax rebates are left to the discretion of heads of customs offices. It would be expedient to stipulate that customs offices must examine claims for tax rebates within ten working days and discharge them within three days after taking a decision. A consent from the head of a customs office should not be required.
Setting exchange rates
Customs offices set currency exchange rates once a week, while the value of goods is declared at a rate that is valid on the day of the transaction. Problems arise when goods are sold at a small profit margin and the exchange rate changes markedly afterwards. In such cases goods are considered to have been sold at a loss, making a rebate on VAT is impossible. To prevent this, customs should use exchange rates announced daily by the Bank of Lithuania on a daily basis.
If the problems encountered in customs affairs are to be solved, the principles by which customs are currently operating should be replaced and enshrined in the acts of law. In addition to the aforesaid recommendations, LFMI proposes that:
· the Customs Code explicitly defines the rights of individuals, importers, exporters, and passengers.
· the Customs Code defines the principles by which the rights of individuals are ensured. First of all, a person should not be regarded as an offender unless proven otherwise in accordance with procedures established by law.
· for regulations to be stable and transparent, the Customs Code makes no references to other laws that would prescribe additional liabilities and requirements. The right of the Customs Department to issue internal instructions that affect the interpretation of tax and other regulations should be outlawed.
· the existing legislation regulating customs operation and procedures should be revised. All legal acts and regulations pertaining to customs operation and procedures should be laid out in the Customs Code. This would help streamline the work of both customs and businesses.