"WHY DOES A DISPUTE OR COMPLAINT ARISING FROM EXCESSIVE CUSTOMS DUTY PAYMENTS OCCUR?"

The Head of "Mongolian Business Consulting" /MBC/, a Certified Tax Consultant of Mongolia, and a Customs Accredited Consultant, S. Norjinsuren, participated in the ‘Tax Legislation Reform’ seminar organized by the General Customs Office (GCO) on January 22, 2025, and shared her insights on the current customs laws and regulations in force today.

During the open discussion mentioned above, our company provides the following advisory to all participants engaged in foreign trade and customs relations, based on the issues raised and within the scope of customs legislation.

CUSTOMS DUTY (CD), SPECIFICS:

As a result of the foreign trade agreements entered into by traders, when customs clearance is carried out for goods being imported or exported across the national border, the customs authorities collect the Customs Duty (CD) and remit it to the state budget.

In other words, in our country, the Customs Duty (CD) is collected based on the customs tariff rates established by the State Great Hural (Parliament) or agreed upon through international treaties or agreements for imported goods. This distinguishes Customs Duty from other types of taxes in Mongolia, as the CD is not a tax levied on goods, services, or activities that originate within Mongolia's territory.

Currently, when imposing Customs Duty (CD) on imported goods, it is calculated based on the customs value of the imported goods according to the tariff rates established by the competent authority (e.g., preferential, discounted, or standard tariffs). For exported goods, the duty is applied in monetary terms per unit of the goods. The components used to calculate the Customs Duty for imports include the origin of the goods, the Harmonized System (HS) code, the customs value of the imported goods, and the methods of valuation.

Additionally, under the General Tax Law and relevant legislation, the customs authorities collect VAT (Value Added Tax), Excise Duty, and the Special Tax on Motor Gasoline and Diesel Fuel when carrying out customs clearance for imported goods crossing the national border.

THE NEED TO KNOW CUSTOMS LEGISLATION AND ITS SIGNIFICANCE:

People lose out due to lack of knowledge or insufficient information. Not everyone is familiar with all laws, especially Customs legislation, and such opportunities are limited.

The Law on Customs, the Law on Customs Tariffs, the Law on Customs Duties, and other related legislation of Mongolia are collectively referred to as 'customs legislation.' Customs legislation defines the economic foreign trade policy of Mongolia and sets the standards for the rights to bring goods across the national border. These laws are based on international agreements and conventions that Mongolia has joined, such as those of the World Trade Organization (WTO) and the World Customs Organization (WCO), and the country is obligated to directly implement their standards and norms.

Therefore, customs legislation covers a very broad scope, making it difficult for everyone to fully understand and implement. As a result, many countries around the world have the profession of 'customs management' and specialized professionals. In line with this, since 2002, Mongolia has started training participants in customs relations in the field of Customs and Foreign Trade Management.

Entrepreneurs starting their first business often face many questions such as: What is a foreign trade order, how do you establish a contract, what is the customs value of imported goods? Why are there multiple methods of valuation? What consequences will arise if the steps outlined in the law are not followed sequentially? How will this affect the taxes I have to pay? By understanding and addressing all these questions, it becomes easier to communicate with customs authorities and customs officers, creating opportunities for legal cooperation. However, the challenge remains for business owners to find and understand the relevant information from customs legislation. When both parties understand and implement the law in a uniform manner, trust is built. But if this issue is not resolved, misunderstandings can arise, which increases the likelihood of foreign trade operators' rights being violated.

Therefore, if you are planning to start or are currently engaged in foreign trade, fully understanding the relevant laws and actively participating in their implementation will help you operate successfully, profitably, and lawfully, preventing any potential risks.

"WHY DO DISPUTES AND COMPLAINTS ARISE REGARDING 'EXCESSIVE CUSTOMS DUTY PAYMENT'?

The majority of disputes and complaints arising at customs authorities are related to Customs Duties (CD) on imported goods. The key components of Customs Duty (CD) include customs value, valuation, product classification code, tariff rates, and any exemptions or reductions in taxes. The amount of import customs tariffs is linked to the origin of the goods and the corresponding certificate of origin.

Customs Duty (CD) on imported goods is calculated based on the customs value of the imported goods. The price agreed upon in the foreign trade contract between the importer and their partner is referred to as the 'transaction value.' If certain costs outlined in Article 10.3 of the Customs Tariff and Customs Duty Law are not included in your 'transaction value,' those costs must be added to the transaction price to determine the Customs Value. These additional costs are based on the foreign trade documents, which reflect the stages of the goods' delivery as per the agreed INCOTERMS conditions. The customs value of imported goods is determined using one of six valuation methods, and these methods must be applied in a specific sequence as required by law. If the customs authorities find that the information or documents you have provided are incomplete, insufficient, or that additional documentation has not been submitted, they may reject your transaction price and the agreed price method. For example, even if you purchased goods for $1,000, they may refuse to accept this price and set the customs value higher based on the customs price database, leading to a higher tax liability. Disputes and complaints often arise due to discrepancies in the determination of Customs Duty and the customs authorities’ failure to provide explanations or engage in consultations regarding their decisions.

To resolve this issue, you need to have knowledge and understanding of the WTO Technical Barriers to Trade Agreement, the implementation of Article VII of the General Agreement on Tariffs and Trade (GATT), the Rules of Origin Agreement, and the laws related to Customs Tariff and Customs Duties.

CUSTOMS TARIFFS FOR IMPORTED GOODS AND THE SELECTION OF TARIFFS:

Our country has preferential, discounted, and standard tariffs for imported goods, and these tariffs are applied differently depending on the country of origin of the goods. For example, based on the WTO Rules of Origin Agreement and the Certificate of Origin, Customs Duty (CD) is calculated using the preferential tariff. In this case, the customs tariff for most imported goods is typically 5%, but each imported good needs to be individually checked and verified. To apply the discounted tariff, it is necessary to be familiar with the Rules of Origin under the 'Economic Partnership Agreement' with Japan and the 'Trade Agreement with Asia-Pacific countries,' among others. The tariff rate under these agreements may be lower than the preferential tariff.

Therefore, you should calculate the taxes payable on your imported goods, select the correct import tariff rate, and prepare to report this to the customs authorities.

WHY IS COOPERATION AMONG PARTICIPANTS IN CUSTOMS RELATIONS IMPORTANT?

For government agencies, it is crucial to provide participants in customs relations with timely, accurate, complete, and legally-based information that meets their needs. This has become a pressing issue for every organization. Customs and tax authorities also work with limited resources, which makes it difficult to provide accurate and timely information to everyone. Additionally, the human resources, professional knowledge, and skills of these organizations are often inconsistent and not fully developed.

In the Revised General Annex of the Kyoto Convention by the World Customs Organization (WCO), it is stated that customs authorities should facilitate trade to the highest possible level while ensuring legal trade. Customs authorities should have the strong intent and willingness to facilitate trade based on risk management principles. Furthermore, customs authorities are required to guide what actions they should take to prevent themselves from being involved in potential violations of the law.

Furthermore, it has become an urgent issue for our country to incorporate and implement the provisions of the WTO Trade Facilitation Agreement, which we joined in 2017, into our national legislation.

According to the Government's '1111' service, the General Department of Customs website (https://gaali.mn/), the hotline 1900-1281, as well as customer satisfaction surveys conducted by the General Department of Customs (GDC)

It appears that the information provided to participants in customs relations is insufficient. It does not fully meet the demands and needs of users. Some individuals require basic information, while others need detailed, sector-specific information related to exemptions or reductions in duties. When stakeholders receive incomplete or inaccurate information, or when information is not accessible, confusion, complications, and misunderstandings arise. Therefore, delivering complete, timely, and transparent information tailored to each user's needs will foster trust and improve the implementation of laws. As such, establishing a consultative mechanism involving all parties engaged in customs relations will be a crucial step in addressing these issues.

"MONGOLIAN BUSINESS CONSULTING" (MBC) is always ready to provide information and advice on foreign trade and customs matters.

Photo source: https://www.facebook.com/MongolCustoms