Any cross-border trade involves a large number of stakeholders including producers, logistic companies and distributors, through whom vast amounts of goods and wealth travel. Further cross border trading also involves many legal formalities like contracts, certificates, customs and approvals from various regulatory bodies.
Even though there are many authorities involved in any cross border trade, but the most notable authority in any cross-border trade is Customs. The role of the customs is to ensure that all the permits obtained are valid, all the goods have been lawfully declared and that all the defined regulatory requirements have been met. Customs duty is a very crucial component of any international trade, it is an indirect tax levied on both imports and exports by customs authorities for international shipments.
This tax is collected by the government to generate revenue that is used for country’s development and economic growth of the citizens. Another very important reason for imposing customs duty is to maintain domestic manufactured products equally competitive with the imported goods. Today’s customs handling requires significant manpower to maintain
safety, customs evaluation and regulations. Moreover, customs clearance is a tedious task and takes a lot of time, sometimes even weeks if proper documentation is not provided or some paperwork is incorrect.
This shared ledger technology can have a huge impact on customs services and can help to make the whole process swift and transparent. Let’s understand how: Blockchain will record all the trade transactions chronologically, that can then be shared with all the concerned parties involved in the supply chain, thus minimising the risk of frauds. The complete information about the shipment, including the proof of purchase, clearance form, bill of lading and insurance will be recorded on the blockchain and will be accessible to suppliers, transporters, buyers, regulators and auditors.
Therefore, through blockchain Customs authority would be able to see the necessary data like the seller, buyer, price, quantity, carrier, insurance etc. that has been tied with the goods that need to be declared for customs clearance. With this transparency provided by blockchain technology, customs authorities and other border agencies would have real-time updates of any trade happening, which would significantly improve their efficiency for risk analysis and will reduce the burden of manual verification to validate declarations.
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This in turn would lead to faster Customs declaration and reduced end-to-end processing time. There are growing concerns about product quality and authenticity of the products that are traded. Therefore relevant licenses, permits, certificates and other authorizations are required at the time of Customs clearance, depending on the nature of the declared goods and related national regulatory requirements to keep a check on the illegal trading.
All of these certificates if uploaded on the blockchain can be accessed easily from anywhere. Once implemented, this would also minimise the risk of data manipulation. Moreover, as the customs authority will have access to all the shipment related documents present on the Blockchain, it can automatically clear the goods that have been ‘pre-screened’ by them on the shared ledger at an earlier stage. This would eliminate the need of withholding these goods at the time of declaration, which is the case currently, where the shipment takes a lot of time to get customs clearance and because of which the delivery of goods gets delayed.
Further, this would also decrease auditing and accounting costs as well. In many cases of international trade, tax fraud occurs, in which there is a wide gap between the expected value-added tax (VAT) revenues and the revenue that is actually collected.
When goods are imported into a country with a VAT regime, import VAT is charged as a percentage of the value of the imported goods. Because of transparency in the supply chain provided by blockchain, frauds and errors will be much easier to detect because the system will provide clear and transparent information about all the transactions. Thus making the whole system more robust and reliable. Additionally, all the transactions between an importer and an exporter can be handled by smart contracts which are self-executing contracts and gets executed when the predefined conditions are met.
These smart contracts can be used to automate the VAT collection process and thus bring more transparency in the system. In this setup, an automatic payment equivalent to the amount of VAT payable will be deducted from the buyer’s payment to the seller and will be released to the concerned department at the time of clearance of the goods. The remaining pool of money after deducting VAT, can then be sent to the seller of the goods. Thus minimising any chance of fraud or false declarations.