CUSTOMS IMPLEMENTATION FOR IT RELATED PRODUCTS BY SORIA OSMAN DEPUTY DIRECTOR OF CUSTOMS...

CUSTOMS IMPLEMENTATION FOR IT RELATED PRODUCTS

BY

SORIA OSMANDEPUTY DIRECTOR OF CUSTOMS

CLASSIFICATION, TARIFF AND DRAFTING SECTIONRoyal MALAYSIAN CUSTOMS DEPArTMENT

1

OUTLINE

Tariff Commitment under ITA Classification issues on IT Related

Products Challenges in Implementation by

Customs

INFORMATION TECHNOLOGY AGREEMENT

(ITA)

The Information Technology Agreement (ITA) is an agreement enforced by the World Trade Organization (WTO) and concluded in the Ministerial Declaration on Trade in Information Technology Products in 1996, and entered into force 1 July 1997.

The aim of the treaty is to lower all taxes and tariffs on information technology products by signatories to zero.

TARIFF COMMITMENTS UNDER ITA

COMMITMENTS:

Parties shall bind and eliminate customs duties and other duties and charges of any kind, with respect to all products specified in the Agreement (Attachment A and B) through equal rate reductions of customs duties beginning in 1997 and concluding in 2000. Parties shall:

No later than 1 July 1997, bind all tariffs on items listed;

No later than 1 July 1997, make the first such rate reduction effective;No later than 1 January 1998, the second such rate reduction;

No later than 1 January 1999, the third such rate reduction; and

No later than 1 January 2000, complete such rate reduction.


PRODUCT COVERAGE:

Products under 190 tariff lines (six digit) are covered under the ITA which include computer hardware and peripherals, telecommunications equipment, computer software, semiconductor manufacturing equipment, analytical instruments, and semiconductors and other electronic components. Products covered under the ITA are commonly classified in Chapters 84, 85 and 90.

There are no exceptions to product coverage, however for sensitive items, it is possible to have an extended implementation period.


MALAYSIA’S IMPLEMENTATION OF THE COMMITMENTS:

No No Of Tariff Lines For IT Products

Reduced/Eliminated

Year(Enter Into Force)

1. 4 1.1.1998

2. 30 29.9.1999

3. 30 1.7.2000

4. 7 24.5.2001

5. 2 14.3.2002

6. 12 29.5.2003

7. 5 9.7.2005

8 16 1.1.2006


EXPANSION OF PRODUCT COVERAGE:

The World Trade Organisation is currently in discussions to significantly expand the World Trade Organisation Technology Agreement of 1996 to include many more IT products. To date under ITA Expansion, 279 products tariff line at HS 6 digit level is proposed of which Malaysia supports 158 tariff lines.

MITI, Customs and various related agencies are currently actively engaging consultations to finalise the list by July, 2013.

CLASSIFICATION OF IT PRODUCTS

CLASSIFICATION OF GOODS:

Goods are classified based on the Harmonised System (HS), a nomenclature developed by WCO. Currently HS version 2012 is in use. Classification of good adhered to the 6 General Rules of Interpretation (GIR). The Interpretative Rules establish classification principles and provide a step-by-step basis for the classification of goods within the Harmonised System.

For Malaysia there is an additional rule i.e. Rule 7, basically for the Director General of Customs to decide on classification at the national level subheadings .


CLASSIFICATION TOOLS:

The Royal Malaysian Customs Department, specifically the Classification Section in Headquarters as well as in the various states use various classification tools to assist :

Customs Duties / AHTN Order 2012HS Explanatory Notes (EN)Supplementary Explanatory Notes (SEN) for AHTNCompendium of Classification Opinions to the HSHS Commodity Data BaseNational Compendium of Classification Classification rulings/guidelines issued by HeadquartersInternetTechnical books/ products specification/brochuresExplanation from product expertLaboratory/expert analysisTechnical tools for simple test/calibration (e.g. callipers, weighing machine, magnifying glass, ruler, magnet , microscope)


CLASSIFICATION ISSUE 1: Classification of a multi-function LED monitor A multi-function LED monitor capable of receiving signal from computer, DVD player, set-top box , video game console or digital TV via interfaces such as D-Sub, DVI, HDMI and RCA jack. The product also consists of an audio circuit.

General Interpretative Rule 1 (GIR 1) is used to classify the product in heading 85.28 of HS 2012 with the following legal text: “Monitors and projectors, not incorporating television reception apparatus; reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproduction apparatus.”


CLASSIFICATION ISSUE 1: Classification of a multi-function LED monitor (cont)

Classification issue arises at 6 digit subheading level i.e. whether the product is more suitably classified in 8528.51 or 8528.59 with the respective legal text as follows: 8528.51 - - Of a kind solely or principally used in an automatic data processing system of heading 84.71; 8528.59 - - Other

As a signatory to the HS Committee of WCO, classification of goods by Royal Malaysian Customs Department is abided by the guidelines provided in HS Explanatory Notes 2012.

CLASSIFICATION ISSUE 1: Classification of a multi-function LED monitor (cont.)

HS Explanatory Notes 2012, page XVI-8528-2

8528.51 - - Of a kind solely or principally used in an automatic data processing system of heading 84.71

Those monitors which are capable of accepting a signal only from the central processing unit of an automatic data processing machine and, therefore, are not able to reproduce a colour image from a composite video signal whose waveform conforms to a broadcast standard (NTSC, SECAM, PAL, D-MAC, etc.). They are fitted with connectors characteristic of data processing systems (e.g., RS-232C interface, DIN or SUB-D connectors) and do not have an audio circuit. They are controlled by special adaptors (e.g., monochrome or graphics adaptors) which are integrated in the central processing unit of the automatic data processing machine.



HS Explanatory Notes 2012, page XVI-8528-2

In short, computer monitors within the meaning of solely or principally use in ADP, must have these criteria:

1.Are not able to reproduce a colour image from a composite video signal whose waveform conforms to a broadcast standard (NTSC, SECAM, PAL, D-MAC, etc.). 2.Are fitted only with connectors characteristic of data processing systems (e.g., RS-232C interface, DIN or SUB-D connectors) and 3.Do not have an audio circuit.



Issue arises from the text “of a kind solely or principally used in an automatic data processing system of heading 84.71”

The product in question is not solely used for ADP machine due the fact that it is also capable of receiving signal from other media as well as it has an audio circuit. In this regard the principal function is also not clearly determined, as such GIR 3 (c) is used to classify the product in 8528.59 as monitors not solely or principally used in an automatic data processing system.

Classification : 8528.59 by GIR 1 and 3 (c)



CLASSIFICATION ISSUE 2: Classification of USB modem for wireless broadband

Function : Receives and transmits data from/to internet via wireless communication by inserting the product into the USB port of PC or lap-top.

No classification issue at 6 digit HS subheading as it is classified in 8517.62 as “Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus.”

Issue arises at national line level i.e. 9 digit level; whether the product is more suitably classified in 8517.62 310 or 8517.62 590.


CLASSIFICATION ISSUE 2: Classification of USB modem for wireless broadband (cont.)

- - - Apparatus for carrier-current line system or for digital line system:

8517.62 310 - - - - Modems including cable modems and modem cards

OR - - - Other transmission apparatus incorporating reception apparatus:

8517.62 590 - - - - Other


CLASSIFICATION ISSUE 2: Classification of USB modem for wireless broadband (cont.) Classification : 8517.62 590

Justification :

Though 8517.62 310 has specific description, the tariff code is meant for modem connected by cable. Carrier-current line system in the subheading text means telephone line system, whereas digital line system means connection by either metallic pair cables or optical fibre cables Therefore, a wireless USB modem is more suitably classified in 8517.62 590 as other transmission apparatus incorporating reception apparatus.

Source: Malaysian Communication and Multimedia Commission (MCMC)

CHALLENGES IN IMPLEMENTATION BY CUSTOMS

CHALLENGES FACED BY CUSTOMS IN IMPLEMENTATION:

Classification of IT products, impact on:- revenue (domestic tax)- prohibition

Identification of IT products at the point of import

Fast moving technology

Lack of officers with technical knowledge

THANK YOU

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CUSTOMS IMPLEMENTATION FOR IT RELATED PRODUCTS BY SORIA OSMAN DEPUTY DIRECTOR OF CUSTOMS...

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