Incorrect Product Classification and Value Falsification: What Violations Importers Are Committing

During the period from January to October of this year, the post-clearance control department of the State Revenue Committee of Armenia conducted 67 customs inspections at various organizations engaged in imports, during which violations amounting to 253 million AMD were recorded.

According to Hetq.am, it was announced today at a meeting with reporters by Armen Safaryan, the head of the post-clearance control department. "It is probably clear to all of us that the best way to address any legal violation is through prevention. Our analytical capabilities will be strengthened precisely to address this," stated Armen Safaryan.

The majority of the recorded violations are related to the distortion of data regarding the values in the invoice-bill during the import process. As explained by the head of the post-clearance control department, this occurs in two ways: either by reducing or increasing the values. In the first case, importers manage to pay customs duties that are less than the legally required amount; in the latter case, they reduce their profit tax. "Both of these actions have their objectives: In the case of reduction, operators are allowed to pay lower mass values. They also hide their sales turnover in the process. The next is the increasing of invoice values. The aim here is to inflate expenses when customs payments are not required during the customs clearance, or VAT for that imported goods is not levied, thus trying to reduce their profit tax later," said Armen Safaryan.

The next group involves violations of external economic activity indicators. Entrepreneurs import one product but present it under the name of another product. Here, the aim is again to pay less customs duty. In other words, the imported product is presented under the guise of a product that requires lower customs duties. Armen Safaryan provided an example: "If there is an excise tax requirement on a particular product, that product is presented under the name of other groups of goods (from which excise tax is not collected) to avoid the excise tax."

Another common type of violation is the underreporting of the quantity of imported products, which is again aimed at paying lower taxes. According to the head of the post-clearance control department, compared to previous years, the cases of these violations have decreased. However, periodically, there are entrepreneurs who try to avoid or reduce the customs charges levied during imports through violations.

After recording the violations, a report is compiled, which is a regulatory act. This is presented to the business entity that committed the violation. The next stage is the collection of the amount recorded as a result of the violation.

"Our businessmen are very clever. There are countries from which imports are already inherently risky. These are the countries where invoice falsifications are possible, and transactions conducted with these states are deemed more risky and are examined more thoroughly by us. These include China and the United Arab Emirates. We also have issues with Turkey because the goods imported from this country are restructured in Georgia, and the invoices presented to us are already restructured, thus data is often distorted here as well," noted Armen Safaryan.

Additionally, this year, the regulations for the post-clearance control of the State Revenue Committee were established, which defined the new structure of the department and the functions of its subdivisions. The department has five divisions that carry out customs inspections, analyses, studies, controls, and observations.