This audit assessed the Australian Customs and Border Protection Service's administration of the Tariff Concession System.
Audit objective and criteria
The objective of the audit was to assess the Australian Customs and Border Protection Service's administration of the Tariff Concession System.
To form a conclusion against the objective, the audit adopted the following high-level criteria:
- an appropriate governance framework to support the effective operation of the system was established;
- a consistent, accountable and transparent assessment process for TCO applications has been implemented;
- processes and systems for the ongoing management, review and eventual revocation of TCOs are effective; and
- the approach to managing compliance with TCO requirements was sound.
Imposing duty on certain imported goods is designed to influence the flow of trade by regulating their value to protect Australia’s local economy and industry. In 2013–14, goods to the value of $338 billion were imported into Australia, with $9.3 billion in customs duty collected. There are, however, a number of ways that importers can obtain duty-free entry of imported goods to Australia, including through accessing duty concession schemes, such as the Tariff Concession System (TCS). To receive a duty concession under the TCS, an imported good must be covered by a current Tariff Concession Order (TCO) made by Customs. A TCO consists of a tariff classification and text describing the good. As at October 2014, there were over 15 000 current TCOs available for use by importers. Under the TCS, around $1.8 billion in revenue to the Commonwealth was forgone in 2013–14.
Customs is responsible for administering the TCS, including assessing TCO applications, objections and revocations. In 2013–14, Customs received 941 applications for, and 133 objections to, TCO applications, made 770 TCOs, refused 79 TCOs and revoked 327 TCOs. Customs is also responsible for managing compliance with TCS requirements and providing assurance that importers applying a TCO to reduce customs duty are eligible to do so.
The TCS is supported by mature administrative arrangements that provide a generally sound basis for the assessment and management of TCOs, including the processing of TCO applications, objections, revocations, as well as the management of TCOs that are in use. There are, however, aspects of Customs’ administrative arrangements that could be further improved, including by:
- developing a communications strategy for the TCS to maximise the effectiveness of communications and awareness raising activities, with a particular focus on local manufacturer engagement; and
- more clearly documenting TCO application assessment activities, in particular the basis on which applications are assessed as meeting legislative requirements, to provide greater assurance regarding the integrity of the assessment and decision-making process.
Within the context of Customs’ broader compliance responsibilities, the limited resources assigned to TCS compliance are allocated on a risk basis and, overall, the small number of targeted compliance activities undertaken has identified TCO misuse. Nevertheless, Customs is not well placed to determine whether its activities directed at managing TCS compliance, including education and awareness activities through to enforcement action, are effectively addressing the risks arising from TCO misuse. This is primarily due to the: manner in which Customs collects and stores its compliance data, which makes it difficult to verify the number, scope and outcome of compliance activities; and absence of an appropriate set of performance measures against which an assessment of the effectiveness of compliance activities can be undertaken.
To further improve Customs’ administration of the TCS and strengthen compliance monitoring arrangements, the ANAO has made three recommendations designed to: enhance engagement with key stakeholders; provide greater assurance regarding the assessment and decision-making process; and improve the monitoring and reporting of compliance activities.