Japan – lesson learnt from custom audits

On 10 November 2021, Japan Customs released its annual report on customs audits. The report covered customs audits on 715 importers conducted from July 2020 to June 2021.

Highlights from the report include the following:

  • 84% of importers audited were found to have mistakes affecting customs duties, up from 81% the previous year.
  • The average amount of duties and penalties assessed through audits per importer was JPY 9.3M (approx. USD 90,000). This represented an increase of 170% year over year.
  • The amount of severe penalties for fraud or gross negligence more than doubled from the previous year despite a smaller number of audits.
  • Compared to the previous year, tobacco and plastics were no longer among the top 5 categories of under-declared items. Replacing them were sugars of HS Chapter 17 and non-knitted apparel products of HS Chapter 62.
Number of audits% of mistakesAverage duty and penalties
202171584%JPY 9’300’000
20203’36181%JPY 3’500’000
20194’07979%JPY 3’500’000

The report also provided the following examples of underpaid duties:

Case 1: An importer of pet products was found to have prepared invoices with an inappropriately low value despite being aware of the correct value. As a result, the importer was assessed JPY 16.5M, including 4.1M in penalties for fraud.

Case 2: An importer of apparel was found to have declared based on incorrect invoices prepared by an exporter. The importer used these invoices as a basis for customs value despite knowing that their value were too low. As a result, the importer was assessed JPY 7.96M, including 1.09M in penalties for gross negligence.

Case 3: An importer of auto parts sold materials to its overseas manufacturer. The sales price of these materials did not include costs for dies, and the importer failed to declare such costs in its import value. As a result, the importer was assessed JPY 58.25M.

Case 4: An importer imported furniture and other goods on behalf of a non-resident entity. In Japan, a non-resident’s purchase price cannot be used as the basis for customs value, and thus the goods should have been valued under the deductive value method. However, the importer was found to have declared the customs value based on the invoice price. As a result, the importer was assessed a total of JPY 2.01M.

Conclusions: While the number of audits decreased last year likely owing to the COVID-19 pandemic, the statistics indicate that Customs has been finding more and bigger errors in the course of their post-declaration audits. Common reasons for assessments included failure to declare costs paid separately from payment for imported goods, as well as incorrect usage of a non-resident entity’s purchase value as the customs value. In order to avoid penalties for such issues, importers are encouraged to conduct a “health check” to ensure that all goods are being declared accurately.

For more information please find the Trade Intelligence Asia Pacific published by PwC here.

Image source: http://unsplash.com

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