Risk of fraud when quota for sugar imported from ASEAN countries lifted

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Smuggled sugar seized by Dong Thap Customs. Photo: T.H

According to Decree 125/2017/ND-CP amending and supplementing Decree 122/2016/ND, sugar products, heading17.01 are subject to the tariff quota regime. The volume of sugar in the annual tariff quota permitted by the Ministry of Industry and Trade shall enjoy the preferential import duty rate or MNF tariff rate of the current import-export tariff (25%). The volume of imported sugar beyond the annual tariff quota permitted the Ministry of Industry and shall be subject to an import duty rate outside the quota prescribed in Appendix IV of Decree 122/2016/ND-CP (from 80-100% according to the type ofsugar). If there are international treaties on import quota/non-import quota and related tax rates, then import tax rate on sugar products will comply with international treaties and Decrees 125/2017/ND-CP and 122/2016/ND-CP.

However, Circular 23/2019/TT-BCT dated November 13, 2019 of the Ministry of Industry and Trade stipulates non-application of import quota for sugar products originating from ASEAN countries (this circular took effect from January 1, 2020), it willnot apply to sugar (HS code 1701) originating from ASEAN countries per current provisions. The volume of sugar imported from ASEAN countries willbe excluded fromthe annual tariff quota permitted by the Ministry of Industry and Trade according to the World Trade Organization (WTO)'s commitment to WTO countries, whileimport tax rates for sugar products originating from ASEAN countries willcomply with the Government's regulations.

From January 1, 2020, the tariff quota regime from ASEAN as prescribed in Circular 23/2019/TT-BTC has been lifted, so import tax rates for sugar products imported from ASEAN countries is likely to apply as follows:

If sugar products imported from ASEAN countries with C/O form D meet conditions specified in Article 4 of Decree 156/2017/ND-CP dated December 17, they shall enjoy the 5%-ATIGA preferential import duty rate.

If there is no C/O form D or C/O is invalid or the shipment does not meet the conditions specified in Article 4 of Decree 156/2017/ND-CP dated December 27, the imported sugar products willnot enjoy the ATIGA preferential import duty rate and shall face the MFN tax rate (25%) as prescribed inDecree 125/2017/ND-CPamending and supplementing Decree 122/2016/ND-CP.

The shortcoming is that when carrying out customs procedures for the sugar shipment, the enterprise doses not have C/O to prove goods origin from ASEAN, so what tax rate shall be applied to accept the enterprise’s declaration? Is it MFN tax rate of 25% or the tax rate beyond the tariff quota of 80-100% according to the type ofsugar? When there have no any C/O or document submitted to Customs but is completely based on the declaration of the enterprise, how can we prove ifthe sugar shipment originates from ASEAN countries to apply Circular 23/2019/ TT-BCT but excludes tariff quota to enjoy MFN tax rate (25%)?

For example, if the sugar shipment is imported from a non-ASEAN country into an ASEAN country before being exported to Vietnam, it willbe subject to import duty rate outside the quota from 80-100% according to the type ofsugar. But if the origin of the sugar shipment imported from ASEAN countries is not controlled, firmswill abuse this policy to declare the 25%-MFN tax rate, leading to a risk of tax policy loopholes and high revenue losses because the tax rate difference is more than threetimes between the two objects (25% compared to 85%).

If C/O form D is invalid or there is no C/O form when the time for C/O owing expires or the shipment fails to meet requirements specified in Article 4 of Decree 156/2017 / ND-CP dated December 27, 2017 of the Government, which tariffs must be applied to these sugar shipments imported from ASEAN (MFN 25% or 80-100% according to the tariff quota)? Or, in case of owing C/O form D, which tax rate do enterprises declare for tax payment and customs clearance of goods (MFN 25% or 80-100% according to non-tariff quotas), when there is valid C/O form D which is submitted ontime, the enterprise shall carry out procedures for enjoying special preferential import tax rates of ATIGA. The tax difference willbe refunded.

The problem is how to prove that the sugar shipment originating ASEAN imported into Vietnam at the time of carrying out customs clearance not to apply tariff quotas according to Circular 23/2019/TT-BCT?

Point d, Article 4 of Circular 38/2018/TT-BTC of the Ministry of Finance stipulates that “for goods reported to be imposed anti-dumping duty, countervailing duty or subject to safeguard measures, tariff quota or quantity restriction, in pursuit of verifying goods not subjects to these restrictions, customs declarants must send the customs authority 01 original of C/O; imported goods requiring proof of origin prescribed in point b, c and d in clause 1 in this article submitted in compliance with the announcement of specialised management ministries and the Ministry of Finance.

To determine goods not subject to tariff quotas, customs declarants must submit oneoriginal of the C/O to the customs authority at the time of carrying out customs procedures according to regulations of specialised management ministries and the Ministry of Finance. There is no specific regulation on submitting any form of C/O, so the customs declarant submits any form of C/O to prove thegoods are not subject to the tariff rate quota.

So far, there has not been an announcement from specialised management ministries or the Ministry of Finance on compulsory submission of C/O to determine whether sugar imported from ASEAN is subject to the application of duty rate quotas under Circular 23/2019/TT-BTC. So the Customs authority has no basis to askenterprises to submit C/O or documents to prove ASEAN origin for sugar shipments imported from ASEAN countries, it still allows enterprises to enjoy the 25%-MFN tax rate for sugar shipments imported from ASEAN countries even though there is no C/O or C/O form D or owing C/O form D at the customs clearance.

This has the potential risk of policy fraud andhuge loss of State budget, especially for imported sugar shipments not subject to ATIGA special preferential import tax rate of 5% (due to have no C/O form D or C/O form D that is not accepted), sugar shipments are imported from non-ASEAN countries into ASEAN countries and then exported into Vietnam.

When applying Circular 23/2019/TT-BTC to not calculate the quota of sugar imported from ASEAN countries, specialised management ministries and the Ministry of Finance must announce and oblige the obligation to prove the origin at customs clearance to enjoy MFN tax rate (25%). If the origin is not proved and C/O is not submitted to customs at the time of carrying out the customs procedures, we still need to comply with outside tariff quotas (80-100% depending on the sugar type), when the origin is proven, the 25%- MFN tax rate will be applied to sugar shipments without C/O form D or 5%-ATIGA special preferential import tax rate if there is a valid C/O form D.