Updated NZ Customs Rules & Fees: What You Need to Know
12-minute read
Administrative Penalties
Administrative penalties apply to exporters, importers, licensees and agents who make an error or omission on their entry and do not voluntarily disclose it to Customs.
Who do penalties apply to?
Administrative penalties apply to all exporters, importers, licensees and agents who make errors or omissions on import, export or excise (alcohol, tobacco or fuel) entries.
If you engage an agent, such as a customs broker or an accountant, to make entries on your behalf, you may also be liable for other sanctions for any error or omission.
For example, compensatory interest on any duty that is unpaid as a consequence of the error or omission.
Why does Customs issue penalties?
Customs relies on accurate information to risk assess and clear goods for import or export, and to assess all due revenue. A failure to take reasonable care and complete an accurate entry can result in delays, tie up Customs resources and lead to revenue shortfalls.
When are penalties issued?
Customs will issue a penalty on entry errors or omissions that result in:
- a shortfall of duty being paid
- an excess drawback being paid or claimed
- an entry being materially incorrect.
Where an entry has multiple errors, Customs may decide to apply penalties for some errors or omissions, but not for others.
If you discover an error or omission you should disclose it to Customs as soon as possible. If you do this before any compliance actions are notified, you won’t receive an administrative penalty.
How much is a penalty?
The penalty amount depends on the level of liability. The minimum penalty is $200.
If the error or omission was made knowingly.
Then the penalty is 100% of unpaid or undeclared duty, or excess drawback, to a maximum of $50,000.
If the error or omission was grossly careless – doing or not doing something in a way that suggests or implies a high level of disregard for the consequences.
Then the penalty is 40% of unpaid or undeclared duty, or excess drawback, to a maximum of $35,000.
If the error or omission was due to a lack of reasonable care – taking into consideration the:
- amount and seriousness of the shortfall
- processes in place to check entries
- procedures in place to detect mathematical errors
- size and nature of the error
- circumstances in which the error was made.
A reasonable person would be expected to seek professional advice if they were uncertain about what was required of them.
Reasonable care also means having adequate record keeping systems and procedures to ensure that entries are made correctly on behalf of the importers, exporters and licensees.
Then the penalty is 20% of unpaid or undeclared duty, or excess drawback, to a maximum of $20,000.
How do I pay a penalty?
A penalty must be paid to Customs within 20 working days of being issued.
If the penalty is not paid by the close of the 20th working day a penalty of 1% of the outstanding penalty will be charged on the first day after the due date, and a further penalty of 4% of any original penalty still outstanding on the seventh day after the due date.
What if I disagree with the penalty?
If you disagree with a penalty you can apply for a review by Customs or appeal to a Customs Appeal Authority. You still need to pay the penalty to avoid potential late payment charges.
Any administrative penalty of $5,000, or more will be submitted for a Customs internal review before being issued.
Example of lack of reasonable care
A customs agent lodged an import entry to account for milk powder in aluminium packaging imported by their client. Customs detected an error in classification; the goods were milk powder, but were incorrectly entered by the customs agent as aluminium foil strip.
Customs considered the agent had not taken reasonable care in preparing the entry as the supporting documentation clearly stated the goods were milk powder.
A failure to accurately declare the goods impacts on Customs’ risk assessment. The entry was considered materially incorrect and a penalty of $200 was issued.
Compensatory interest and late payment penalties
The following information is intended for education purposes only and is a high level summary of the changes that come into effect on 1 October 2018. There may be more changes that could affect our business customers. We recommend our customers seek additional counsel, as necessary.
When does this change start?
From 1 October 2018 the new system will be in effect for all duty that hasn’t been paid in full at the right time.
Who does this change affect?
Importers, brokers and excise clients who have duty outstanding or have claimed an incorrect refund or drawback.
Why has this changed?
The new system is more transparent and clearer when remissions can be granted. Additionally, it applies to all importers, exporters and excise licensees.
Will Customs pay me compensatory interest if I inadvertently overpay, for example where a duty concession was applicable but not applied?
Customs will only pay compensatory interest to a duty payer if the duty is refunded as a result of:
- a Customs Appeal Authority decision, or
- From 1 October, an Administrative review
From 1 October, this interest payment will be based on the 90-day bank bill rate- the same rate we will charge duty payers for inadvertent underpayment errors.
However, if the error was a result of a mistake in the duty payer’s self-assessment, we will refund the overpayment but not pay compensatory interest.
The provisions for Customs paying interest to duty payers for their overpayment errors are largely the same under the new 2018 Act (s128) as they are under the 1996 Act (s93).
The only changes in this area are to include the new Administrative review into the current process and clarify our payment rates.
If I make a mistake in my entry and underpay duty but voluntary disclose the mistake will I still be charged compensatory interest?
Yes. However, we will charge a reduced interest rate if the following conditions are met:
- the mistake was voluntarily disclosed to us before we notified you of any compliance action, and
- it was demonstrated to us that the mistake was inadvertent, and
- all duty and interest is paid by the due date on the assessment notice/statement of liability. If all other obligations are met, we issue a statement of liability with the reduced interest rate. If this isn’t paid by the due date, this becomes null and void and new statement of liability is issued with the higher interest rate.
The reason for this is that compensatory interest is not a penalty. It’s to compensate the Crown for loss of money.
However, we want to encourage voluntary disclosure of mistakes and we recognise that when an error was inadvertent, charging a higher interest rate won’t have any effect on compliance.
Also, voluntarily disclosing errors means you won’t be charged administrative penalties or receive an infringement notice, depending upon the type of mistake/offence that occurred.
View more information on Administrative penalties and the Infringement notice scheme.
When will a customer be told they owe compensatory interest?
Compensatory interest is charged whenever duty has not been paid in full. This includes late payments, shortfall payments and incorrect refunds and drawbacks.
The purpose of compensatory interest is to compensate the Crown for the interest it could have earned had the correct amount of duty been paid on time.
Compensatory interest is calculated on a daily basis, and charged for the entire period the duty is outstanding:
- For late payments and shortfall payments, interest is charged from the date the duty should have been paid, until the date the duty is paid. If you discover an error and correct it within your deferred payment period, compensatory interest will not be charged.
- For incorrect refunds and drawbacks, interest is charged from the date the refund or drawback was paid to the duty payer, until the date it is repaid to Customs.
When will a customer be told they owe compensatory interest?
Compensatory interest is charged whenever duty has not been paid in full. This includes late payments, shortfall payments, and incorrect refunds and drawbacks.
The purpose of compensatory interest is to compensate the Crown for the interest it could have earned had the correct amount of duty been paid on time.
Compensatory interest is calculated on a daily basis, and charged for the entire period the duty is outstanding:
For late payments and shortfall payments, interest is charged from the date the duty should have been paid, until the date the duty is paid. If you discover an error and correct it within your deferred payment period, compensatory interest will not be charged.
For incorrect refunds and drawbacks, interest is charged from the date the refund or drawback was paid to the duty payer, until the date it is repaid to Customs.
I’m an importer with a deferred account for payments. If I adjust my entry before my account is due will I be charged compensatory interest?
No, as long as you pay the adjusted amount by the due date on your deferred account.
However, if you pay after the due date, interest will accrue from the date the payment was due to the date the payment was made.
This information will be detailed in the Duty Payers Guide which will be released on our website on 1 October 2018.
Compensatory Interest and Late Payment Penalties (CILPP)
What is changing for you?
Customs is introducing a new system for charging compensatory (use of money) interest and late payment penalties to importers, exporters and excise licensees, when duty hasn’t been paid in full at the right time.
The new system will replace the additional duty regime and is designed to be fairer and more transparent.
The new system will be based on Inland Revenue’s use-of money and late payment penalties, and will apply in the same way to importers, exporters and excise licensees.
Compensatory interest and late payment penalties are different:
- Compensatory interest compensates the Crown for loss of use of money, and applies whenever duty isn’t paid in full, including when it wasn’t assessed correctly, or on time.
- Late payment penalties apply to late payments, and aim to encourage you to pay on time.
Importers will be charged interest for any shortfall payments. A shortfall payment is when you have under assessed the amount of duty or GST you have to pay.
Incorrectly claimed refunds/drawbacks will attract interest, where previously there was no additional duty charge.
You’ll have clarity around situations when a refund or remission of interest and penalties could be granted.
When can the Compensatory Interest be applied?
You could be charged compensatory interest if you fail to pay all your duty at the right time for any reason. This could include not paying by the due date, providing incorrect information to Customs or not entering your goods.
You’ll be charged interest from the day after the date on which the duty should have been paid, until your outstanding duty is paid in full.
In most cases you’ll be charged an interest rate that is the same as the Inland Revenue use-of money interest rate for underpayments. However, in some cases, if you voluntarily disclose a shortfall payment to Customs, you may be eligible for a reduced interest rate.
If you claim a refund or drawback that you weren’t entitled to, the interest period will start on the day you claimed the refund/drawback, and ends on the day you pay it back.
When can the late payment penalties be applied?
Late payment penalties will apply to late payments, and aim to encourage you to pay on time.
Late payment penalties will be calculated as follows:
- on the day after the due date, you’ll be charged 1% of the amount you still owe,
- on the eighth day after the due date, you’ll be charged a further 4% of the amount you still owe.
No further late payment penalties will be charged after this, but any unpaid duty will continue to accrue compensatory interest until it is paid off in full.
If you haven’t made any other late payments in the last two years Customs will remit your late payment penalties.
Within three working days of discovering your late payment, Customs will send you a reminder letter to encourage you to pay before the second penalty is applied (eight days after the due date) and an invoice issued.
Application for a refund or remission
In future you’ll know the situations when a refund or remission could be granted. Refunds and remissions are modelled on the Tax Administration Act (1994).
You’ll be able to have late payment penalties remitted/refunded if you have a reasonable excuse for paying your duty late.
You’ll also be able to have interest remitted/refunded if you have paid your duty late due to an emergency event, which must have been prescribed by an Order in Council.
In some exceptional circumstances, interest and penalties will also be remitted if it is consistent with the collection of the highest net revenue over time.
You’ll be able to apply for an administrative review or appeal to the Customs Appeal Authority within 20 working days of receiving an invoice if you disagree with the penalty or interest.
Want to know more?
For more information, you’ll be able to refer to the Duty Payer Guide which will be available on the Customs website.
Travellers and online shoppers
There are some changes that may affect travellers and online shoppers.
The following information is intended for education purposes only and is a high level summary of the changes that come into effect on 1 October 2018. There may be more changes that could affect our business customers. We recommend our customers seek additional counsel, as necessary.
Online shoppers
If you buy goods online from overseas you are classified as an importer. However, if the goods are for your personal use and the value is less than $1,000, the changes do not affect you. However, you do need to be aware of other charges that apply.
Travellers
If you’re travelling in and out of New Zealand there are a few things you need to know about. These are summarised below:
From 1 October 2018
Change: Electronic devices
Description: Customs officers must now satisfy legal thresholds before they can search the digital content of an electronic device (e-device) when processing passengers or crew, or inspecting baggage, mail and cargo. To make an initial search a Customs officer must have reasonable suspicion that the person in possession of the device is involved in relevant criminal offending. To make a more invasive search they must have a reasonable belief the device contains relevant evidential material.
Change: Questioning
Description: The new legislation clarifies a Customs officer’s powers in relation to questioning people. The scope of what Customs officers can ask about has been extended in some cases.
Change: Detaining people – use of force
Description: The new Act clarifies that a Customs officer can apply force if required when detaining a person. This is a technical change to ensure consistency within the Act.
Change: Arresting suspected offenders
Description: Making an arrest without a warrant can now be done with no limitation on timeframe. This change ensures that arrest powers in the Customs and Excise Act 2018 are consistent with other legislation used by Customs.
Change: Baggage search
Description: The Act clarifies that a Customs officer can examine any item in any arriving or departing passenger’s possession or under their control. This includes wallets, handbags, money belts and pocket contents.
Change: Biometric identity check
Description: A person can be requested to undertake a biometric identity check if their identity is unable to be verified with reasonable certainty in a visual check.
Change: Prohibiting use of devices
Description: Customs officers can prohibit the use of electronic communication devices in areas where people are arriving or departing New Zealand, rather than just in Customs-controlled areas or Customs places.
Change: Controlled deliveries – non drugs
Description: Customs officers can now release the following types of goods to investigate further: objectional publications, goods that are designed, manufactured or adapted with intent to facilitate crime, or involving dishonesty; large-scale tobacco smuggling.
Information management
Change: Information sharing
Description: The new Act contains a range of enhanced provisions to better facilitate information sharing with external parties, while ensuring there is transparency and accountability regarding the collection, use and disclosure of information that Customs holds.
Change: Biometric information
Description: The new Act contains varioius provisions governing Customs’ ability to collect, use and disclose biometric information. These provisions are intended to provide greater clarity regarding Customs’ use of biometric information to determine whether a person is of interest for law enforcement, national security, border protection or public health purposes.
From 1 April 2019
Change: Infringement notice scheme
Description: A new infringement notice scheme will allow on-the-spot fines for several offences. The automatic fine for a person committing an offence will be $400. From 1 October 2018, Customs officers will be issuing warnings for these offences to help educate the public, however, all other sanctions will apply during this time. Find out more on the infringement notice scheme page.
Source: NEW ZEALAND, CUSTOMS SERVICE
We’d love to answer any of your questions! Contact us now
P.S. Do you know of other people that will find this article useful? Please share it on social media. Thank you!