For imported equipment, Customs tariff duty is normally applied against the goods at time of importation based on an ‘ad valorem’ percentage of the export price at the place and time of the goods leaving the port of loading – called the Free on Board (FOB) cost of the goods. [NOTE: There are other methods for duty calculation in addition to or as an alternative to the ‘ad valorem’ rates, although they are in the minority and specifically covered in the Customs Tariff Act Schedules. TPJ can assist in this regard, should the need arise.] Customs duty is a federal government indirect taxation levy.

Under certain circumstances, the government allows application to reduce or minimise the duty levied. This task becomes a major benefit to many Importers for their imported value-adding components and/or equipment. Some initial points to note:

· The maximum duty an Importer will pay for any imported goods is generally 5% of the FOB cost. Importers should budget for this expenditure;

· There are some commodities where the duty is more than 5%, although, these are usually in the minimum and generally related to the motor vehicle industry or textile clothing and footwear sector;

· There are items identified in the Customs Act Tariff Schedules that have a ‘duty free’ status in their own right without further processes to reduce any applicable duty. In such cases, seeking duty reduction processes is redundant, because the goods are duty-free in any event.

Concessions for imported goods

Where duty is applicable, there are two federal government programs relating to benefits available for tariff duty relief for imported equipment and componentry. These are the Tariff Concession Order (TCO) Scheme and the Enhanced Project By-Laws Scheme (TCS and EPBS respectively). The Australian Customs Service (ACS) administers the former while AusIndustry administers the latter. Both bodies fall within the Department of Industry, Tourism and Resources (DITR).

The TCS allows duty relief, on Application to the ACS in Canberra, where (generally speaking) it can be established that “..there are no substitutable goods manufactured in Australia in the ordinary course of business.” There are of course far more detailed criteria to be satisfied before one attains these benefits. One of the requirements is to canvass the domestic industry for likely manufacturers of the goods. This is a fairly straightforward process that offers no major obstacle to attaining duty reductions – apart from any “objections” received from the marketplace from Australian producers that believe they can supply the goods as required. The issue here is “substitutability” and that notion is defined in the Customs Act. A TCO Application must be lodged PRIOR TO importation of the relevant goods.

The duty relief here is the full 5% (or whatever is applicable) to 0% (duty free) of the FOB price, expressed as the Customs Value in Australian dollars, in circumstances prescribed by the Customs Act.

The EPBS is available for certain sectors only for the development of capital investment Projects in Australia, where duty remains an issue, either because a TCO is not available or where the full compliment of duty is applicable to the goods in any other circumstance. Any major capital investment project requires new equipment, services and materials for the engineering, construction and procurement (ECP) activities that are associated with the development.

In certain circumstances (on Application) project proponents are entitled to receive duty free status for such imports given satisfaction of criteria approved by AusIndustry. That is, concessions are available for ‘eligible goods’ in ‘eligible industries’.

The industry sectors included in the EPBS are Mining, Resource Processing, Agriculture, Food Processing & Packaging, Gas Supply, Water Resources Development and Power Generation. Ineligible projects are those involved in infrastructure, transport and communications.

To satisfy the regulations pursuant to the EPBS Guidelines, requires a multi-stage process that has different criteria and procedures than the TCO Scheme. The first stage is what is termed the Project Acceptance (PA) Application. The Project proponent needs to detail the scope of the Project and provide a listing of the imported equipment at the “functional unit” (FU) level and the relevant componentry that make up that FU. However, the most crucial part of the PA Application is that the Project proponent needs to set out an “Australian Industry Participation Plan” – AIPP. A need exists to evidence that the Project has given maximum opportunity to Australian industry and local firms or organisations to become involved in the Project.

Assuming these factors are provided to the satisfaction of AusIndustry, they will “approve” the Project for EPBS purposes. This by itself, does not give any concessions as such, it only allows the Applicant to proceed on the basis that it is an “approved Project”. A successful second stage facilitates the “ministerial determinations” for duty-free status of eligible goods.

The second stage is termed the Implementation Report (IR). One has to evidence that the AIPP is being, or has been, implemented. The emphasis here is that Australian goods and services have been given “full, fair and reasonable” (FFR) opportunity to enter the supply chain for the Project. Importation is accepted of certain equipment, however, if that equipment is likely to be produced in Australia, the task of securing a duty free concession is extremely difficult without providing an “advanced technological” argument.

Evidence of “no Australian production” of the relevant FU, can be provided to AusIndustry in one of three ways –

· to secure a Statement from the Industries Supplies Office (ISO) advising that the goods cannot be produced in Australia, OR,
· securing a new TCO for the goods, or showing that an existing TCO applies to the goods, OR
· evidencing genuine consultation with potential manufacturers of eligible goods, supported by independent advice from suitably qualified engineers or industry consultants.

The overriding policy framework of the EPBS is to encourage and support Australian business in major capital investment projects, so that if one can evidence that no equivalent goods are available from Australian production, the IR will facilitate the duty free determinations. Like the TCO process, all Applications pursuant to the EPBS must be lodged with AusIndustry PRIOR TO importation of the eligible goods.

TPJ International Pty Ltd (TPJ) is a leading Customs and Tariff consultant for both the TCS and EPBS.