A report by the Auditor General of Canada found that Canada Border Services Agency failed to handle customs duties properly causing a loss of $42 million in duty payments due to misclassification.
The report found that in the 2015-16 fiscal year, customs duties accounted for about $5.4 billion (1.8%) of all federal revenue. Auditors noted CBSA was “unable to accurately assess all customs duties owed to the government on goods coming into the country.”
“This was due in part to the Agency’s self-assessment system, which may have allowed importers to be non-compliant with import rules and regulations, and in part to the Agency’s own internal challenges relating to staffing.
“Descriptions of goods on the import forms were often incomplete or incorrect, making it more difficult for the Agency to know exactly what was imported. Through its compliance verifications on specific goods, the Agency established that importers misclassified about 20% of those goods coming into Canada and may have ended up paying a lesser amount of duty as a result.”
In the 2014–15 fiscal year, the Agency paid $136 million in refunds to importers as a result of retroactive changes to import forms. In a targeted verification conducted in the 2015-16 fiscal year, CBSA identified importers should have paid $42 million more than they did. The error was partly due to misclassification.
Other problems included incorrect or poor-quality descriptions of goods on import forms, which were not useful to the Agency; no assessments of individual customs brokers to determine whether they applied import rules accurately; and penalties that were too low to be effective at making importers comply with the import rules.
The problems noted by the auditors could mean Administrative Monetary Penalties could be levied against importers to pay duties as an unaccrued liability, should importers be audited by the CBSA. A report by the Auditor General found that that the CBSA failed to assess individual customs brokers in determining whether they applied import rules accurately.
The report also found that there were incorrect or poor-quality descriptions of goods and that penalties were too low to be effective at making importers comply with import rules.
Come April 1, the CBSA will increase AMP penalties. The increase comes at the direction of the Auditor General who stated in his report that AMPs were too low to improve compliance with trade programs.
Penalties will increase from $150 to $2,400 depending on the contravention code. Some of the codes include failing to keep electronic records; providing information to an officer that is not true, accurate and complete; and failing to report conveyances inbound and/or upon arrival.
For example, C152 where the importer or owner of goods failed to furnish the proof of origin upon request the penalty will move from $150 to $500 for the first offence up to $1,500 for the third and every subsequent offence.
Another example regards tariffs (C218), where a person failed to pay within 90 days duties relieved under section 89 of the Customs Tariff on the goods that entered into a process which produced by-product(s) not eligible for relief. The penalty will move from $300 to $600 for a first offence and for a third and subsequent offence from $450 to $400,000 (per occurrence) jumping to $1,500 to $400,000 (per occurrence).
The increases affect non-compliant importers only. The increases follow a review of the AMP regime that the CBSA undertook from November 2018 to July 2018 that included consultations with industry stakeholders: the Canadian Society of Customs Brokers, the Canadian federation of Independent Business, the Canadian Association of Importers and Exporters, and the Association of International Customs and Border Agencies. Company representatives were also consulted through the border commercial consultative committee.
CBSA will not be increasing system generated penalties related to the timing for accounting for imported goods. This is because industry stakeholders identified these AMPs as having potentially disproportionate, unintended impacts on small and medium-sized businesses.
To ease the transition to the new penalty structure, CBSA will reset the penalty level to the first level for all existing contraventions importers may have. This is being done to avoid unanticipated impacts on the industry that could occur by issuing second and third level penalties at higher levels than previously indicated. The maximum AMP of $25,000 remains unchanged.
To get a full list of penalties per contravention code visit https://www.cbsa-asfc.gc.ca/publications/cn-ad/cn19-05-eng.html. To get a full description of codes visit https://www.cbsa-asfc.gc.ca/trade-commerce/amps/mpd-dmi-eng.html.