Low Value Parcel Processing Taskforce

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Low Value Parcel Processing Taskforce

Interim Report

MARCH 2012

Low Value Parcel Processing Taskforce 1

Interim Report 1

Table of contents 2

Executive summary 1

Key activities to date 1

Reform development and assessment 2

Consultation 3

Reference material 4

Introduction 5

Reform context Growth in low value imports 7

Current import handling and administration processes 8

Tariff classification and duty calculation 9

Application of GST 11

Border and biosecurity fees and charges 11

Modes of importing low value goods 12

Each of these import streams has quite different attributes – both with respect to the nature of goods being imported, and also with regard to the processes by which the importation occurs. Potential reform to import handling and administration needs to have regard to these attributes. 12

Air and sea cargo 12

Process map for the operation of the Integrated Cargo System (ICS) 13

International mail 14

International travellers 17

Taskforce activities to date 19

Review of existing business and border agency processes 19

Review of regulatory arrangements 20

Assessment of current and future operating environment 22

Investigation of alternative approaches operating internationally 23

Domestic stakeholder consultation 24

International consultation 25

Reform development and assessment 28

Assessment Process 29

Further work to be undertaken 30

Assessment of potential solutions 30

Detailed assessment of prospective solutions (including costings) 30

Consultation with stakeholders 31

Development of reform implementation program 31

Appendix A: Terms of reference 32

Composition and Consultation 33

Timing 33

Productivity Commission Recommendations and Government Response 33

Appropriateness of current indirect tax arrangements 33

Appendix B: Biographical details – Taskforce members 35

Bruce Cohen (Chair of Taskforce) 35

Professor Caroline Chan 35

Jim Marshall PSM 35

Appendix C: International mail initiatives 36

C1. Kahala Posts Group 36

Background 36

Current focus 36

Relationship to the low value parcel processing taskforce 37

C2. MEDICI - Mails Electronic Data Interchange and Customs Integration 37

Background 37

Current focus 37

Relationship to the low value parcel processing taskforce 38

C3. UPU – Universal Postal Union 38

Background 38

Current focus 38

Relationship to the low value parcel processing taskforce 38

Appendix D: Regulatory framework 40

D1. Introduction 40

D2. Arrival of mail and cargo into Australia 42

D3. Border Control (security and biosecurity) 45

D4. Application of imposts 47

D5. Other matters 49

Return of mail 49

Collection of statistical information 49

Appendix E: Summary of international low value import schemes 51

Appendix F: International mail products and categories 53

Express mail service (EMS) 53

International parcels 53

Registered Post International 53

Air mail letter 53

Other mail 53

Appendix G: International mail and cargo volumes 54

Executive summary

The purpose of this Interim Report is to provide an update with respect to the progress of work being undertaken by the Low Value Parcel Processing Taskforce (LVPPT), which has been established to investigate new approaches for the handling and administration of low value imports of goods, particularly in the international mail stream, including options for revenue collection.

The Interim Report has been prepared in a form to enable public release, while at the same time ensuring that no aspect of Australia’s customs, border security or biosecurity processes has been compromised. The Final Report to be provided to Government will incorporate such relevant details in relation to those matters as are required.

Key activities to date

The key activities that the Taskforce has undertaken to date include:

reviewing the existing methods used for handling and administering imports of low value goods, including:

international mail handling processes undertaken by Australia Post;
air and sea cargo operations undertaken by logistics operators such as express couriers, freight forwarders, licensed customs brokers and cargo terminal operators;
border security and biosecurity assessment processes for international mail, and both air and sea cargo;
customs duty and GST assessment processes for international mail, and both air and sea cargo;

reviewing the arrangements under which existing methods for handling and administering imports of low value goods are regulated, including:

Commonwealth legislation and regulatory instruments;
international treaty arrangements, cooperative agreements and ancillary instruments; and
administrative arrangements between Australia Post and the Australian border agencies;

assessing the current and potential future environment in which approaches for handling and administering imports for low value goods need to be considered, including:

current and expected volumes and characteristics of low value goods imported into Australia;
technological innovations with respect to parcel processing, tracking systems and import processing information management systems;

international initiatives being undertaken with respect to international mail processing, including those occurring under the auspices of:

the Kahala Posts Group;^¹
the Medici Group;^²
the World Customs Organization (WCO)/Universal Postal Union (UPU) Contact Committee;^³

reviewing international initiatives including:

ongoing multilateral (e.g. World Trade Organization) and bilateral tariff reform processes;
the Asia-Pacific Economic Cooperation (APEC) Honolulu Declaration to …‘… establish commercially useful de minimis values in our economies that will exempt low-value shipments from customs duties and streamline entry documentation requirements’;^⁴

investigating alternative approaches with respect to the handling and administering imports of low value goods operating internationally, including:

a desktop review of approaches undertaken in seven countries – the United Kingdom, Canada, Singapore, Korea, Japan, the United States and New Zealand; and
a study trip of Canada, the United Kingdom and Singapore to meet with the designated postal operators and relevant border agencies in those countries to understand the logistics, revenue, reporting, compliance and cost recovery mechanisms in these jurisdictions for the processing of low value imports.

Reform development and assessment

The Taskforce is developing potential solutions to reform the way in which low value import processing may be undertaken in Australia. These potential solutions consider a number of aspects including:

infrastructure and/or information systems changes to streamline international mail gateway operations (with respect to both Australia Post and Australian border agency activities);
process changes to streamline international mail gateway operations (as a total process involving Australia Post and Australian border agency activities);
simplification of duty and/or GST assessment and collection processes; and
alternate payment methods for duty and/or GST revenue.

While potential solutions for reform to import handling and administration processes are being identified and assessed, at this stage detailed costing and associated analysis has not been completed. As such, it is not feasible to advise what recommendations with respect to reform of current arrangements may be contained in the Final Report.

Consultation

In carrying out its activities, the LVPPT has been assisted significantly to date by the consultations that it has undertaken with a number of stakeholders, including:

Australian Government departments and agencies:
- Australian Bureau of Statistics;
- Australian Customs and Border Protection Service;
- Department of Agriculture, Fisheries and Forestry;
industry participants:
- Australia Post;
- Australian Federation of International Forwarders (AFIF);
- Conference of Asia-Pacific Express Carriers (CAPEC);
- Customs Brokers and Forwarders Council of Australia Inc. (CBFCA);
- Post Office Agents Association Limited (POAAL); and
business representatives such as
- Australian Music Association;
- Australian National Retailers Association (ANRA);
- Australian Retailers Association (ARA);
- Bicycle Industries Australia;
- eBay Australia & New Zealand;
- Retail Cycle Traders Australia; and
- Visa Australia.

The preparation of the Final Report will require further consultation, including with parties with whom the LVPPT has not yet had the opportunity to engage, such as State and Territory governments.

Reference material

This Interim Report contains a number of appendices that provide relevant background, including material that is being used to inform the LVPPT’s development and assessment of potential reform solutions. These appendices are:

Appendix A: Terms of Reference
Appendix B: Biographical details – Taskforce Members
Appendix C: International mail initiatives
Appendix D: Regulatory framework
Appendix E: Summary of international low value import schemes
Appendix F: International mail products and categories
Appendix G: International mail and cargo volumes

Introduction

On 9 December 2011, the Government released, and responded to, the Productivity Commission’s final report on the Economic Structure and Performance of the Australian Retail Industry.^⁵ The terms of reference for the inquiry included an examination of the sustainability and appropriateness of the current indirect tax arrangements, and the extent that process reform and technology could reduce the administrative costs of collecting indirect taxes and duty on imported goods.

The Commission’s Recommendation 7.1 stated that:
“There are strong in-principle grounds for the low value threshold (LVT) exemption for GST and duty on imported goods to be lowered significantly, to promote tax neutrality with domestic sales. However, the Government should not proceed to lower the LVT unless it can be demonstrated that it is cost effective to do so. The cost of raising the additional revenue should be at least broadly comparable to the cost of raising other taxes, and ideally the efficiency gains from reducing the non-neutrality should outweigh the additional costs of revenue collection.”
The Government response to this recommendation was to note it and state that it would reassess the appropriateness of the low value import threshold when it receives the final report of this Taskforce.
Further, the Commission proposed in at Recommendation 7.2 that:
“The Government should establish a taskforce charged with investigating new approaches to the processing of low value imported parcels, particularly those in the international mail stream, and recommending a new process which would deliver significant improvements and efficiencies in handling. The taskforce should comprise independent members, with the Australian Customs and Border Protection Service (Customs), the Australian Quarantine and Inspection Service (AQIS), Australia Post and the Conference of Asia Pacific Express Carriers providing advice. The terms of reference should outline the criteria that any new system must satisfy including: minimising the costs of processing and delivery delays, streamlining the assessment of Customs Duty, user pays, and without compromise to the border protection functions of Customs and AQIS. This review should report to Government in 2012 and propose an expeditious timeframe for its proposed changes.
Once an improved international parcels process has been designed, the Australian Government should reassess the extent to which the LVT could be lowered while still remaining cost-effective.”
The Government agreed with this recommendation.
Consequently, on 9 December 2011 the (then) Assistant Treasurer, the Hon Bill Shorten, with the Minister for Broadband, Communications and the Digital Economy, the (then) Minister for Home Affairs and Justice and the (then) Minister for Small Business jointly announced the establishment of a Taskforce.
The key role of the Taskforce is to investigate new approaches for the handling and administration of low value imports of goods, including options for revenue collection. The Terms of Reference set out a range of matters for the taskforce to consider in forming its recommendations. A copy of the Terms of Reference is at Appendix A.
The members of the Taskforce are Dr Bruce Cohen (Chair), Professor Caroline Chan and Mr Jim Marshall. Biographical details of Taskforce Members are contained at Appendix B.
The Terms of Reference for the Taskforce stated that it should release an interim report in three months from its establishment. This Interim Report is intended as a progress report on the status of the Taskforce’s investigation and does not contain firm recommendations. It is the intention of the Taskforce to submit the Final Report to the Assistant Treasurer, the Hon David Bradbury, in July 2012 in accordance with the Terms of Reference. The Final Report will contain a comprehensive blueprint for reform, with costed alternatives and timeframes for implementation.

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