By Adam Magombola
Over the recent past we have witnessed revenue authorities in the East African Region sensitizing the traders involved in imports and exports to apply for the Authorized Economic Operator (“AEO”) status, explaining its importance and how beneficial it could be to their operations. What does an AEO status entail? That is a question that I have encountered from many of my clients that prompted this article.
An AEO is a designated individual, business entity or a company that is involved in international trade (imports and exports) and is duly authorized by the Commissioner for Customs and Excise to transact business with customs under a special treatment. The emphasis here should be placed on the special treatments. The global supply chain is prone to, among other challenges, increased costs of operations, penalties for non-compliance, and difficulties in budgeting and financing operations. Of course, some of these challenges are justifiable; customs administrations in developing countries have been sensitive in trying to get rid of leakages that would lead to loss of revenue or compromise public health and national security. In doing so, the administrations may resort to excessive customs scrutiny especially on clearance and movement of goods under customs control. The World Trade Organisation (WTO) has been working tirelessly to make sure that customs across the world facilitate trade. To secure commitment of nations on trade facilitation, WTO drafted a protocol to the WTO Agreement (Marrakech Agreement). After its entry into force in 2017, the protocol secured substantial number of ratifications by nations across the world. Of course, the United Republic of Tanzania is one of them, having deposited instrument of acceptance to the protocol on 8th April 2020.
Just to briefly explore the provisions of the treaty on trade facilitation, Article.7.7 requires each member to designate additional trade facilitation measures related to export, import, or transit formalities and procedures. The measures are listed under Article 7.7.3 to include low documentation and data requirement, low rate of physical inspection, clearance of goods at owner’s premises and rapid release time. Taking a glance at the intended measures one would realize how impactful, the program would be, to both businesses and customs.
“The best time to plant a tree was 20 years ago’’, so goes a Chinese saying, ‘‘The second-best time is now”. The AEO program should have been introduced and implemented many years ago, even so, it is never too late. This can also be the right time. Since the creation of customs administrations, the role of customs has been more of border protection in nature. Trade facilitation has never been the key concern. Partnership between customs and business was not only perceived as impossible, but it was also illogical for one to think of it. Now, it is time to shift mentalities to ensure seamless global supply chain and growth of international trade in general.
Why the AEO opportunity is a game changer?
There is no shadow of doubt that AEOs will minimize many the customs related challenges facing international trade. After a trader has secured AEO status, which from another angle could be viewed as an incentive or reward to the most reliable and trustworthy traders, we do not expect goods to be stranded at the border for several days without valid explanations from customs.
The AEO status will entitle the holder the following benefits; speedy clearance of customs declarations, minimal customs inspection of the goods at entry points, rapid release time, single customs declaration for all imports or exports in a given period, clearance of goods at the owners’ premises especially where the AEO imports a huge volume of goods or where nature of imported goods require verification at the owner’s premises, guaranteed renewal of customs licenses, reduced customs control (there would be no need to employ electronic tracking devices to monitor movement of goods under customs control) and self-management of bonded warehouse facilities. Have you thought of good reputation for AEO as a reward? Yes, it is. Being branded as AEO means you are trustworthy, reliable, and honest. The Customs and Excise department has pledged to relax all strict customs formalities in favour of AEOs, believing that there would be no leakage of revenue or threat to national security. This is one intangible benefit. It is a high time now business should grab this opportunity guaranteed by the customs to ease challenges associated with customs operations.
This AEO status is granted through an application to the Customs and Excise Department. Once the application is lodged, customs will perform checks before the certificate is issued. Of course, some of the criteria that must be met including financial solvency and compliance records; but nonetheless the status is a benefit the entities that apply for this status.
Adam Magombola is a Tax Senior Consultant at Deloitte Consulting. He can be reached through [email protected].