The changing landscape of customs and VAT for posts

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George Hooper, business development operations manager at Lockheed Martin, looks at how the ability to capture key customs information and recoup VAT payments will soon be essential for all European posts

As we all know,  cross-border parcel traffic continues to grow, particularly into Europe from the Far East, and at the same time the international trading environment is changing.

What is going to change?
After years of discussion and lack of progress, the UPU agreed earlier this year on a solution whereby members have agreed to a “phased implementation of self-declared postal rates”. The details of this phased implementation are currently under discussion, but the implications for European posts are that they will shortly be able to set their own postal rates for cross-border traffic, which will probably have the result of increasing the cost of items coming in from China and the Far East and reducing the volume of low-value items.

New EU regulations to modernize VAT collection by 2021 will also mean the removal of the current VAT exemption on small consignments worth less than €22 (US$25) from outside the EU. If VAT has not been paid in advance by the seller, postal operators will need to extract detailed information from complex CN22 labels to calculate the VAT due.

What will be the impact of Brexit on the cross-border volumes into and out of the UK and Europe? As with all things Brexit, no one really knows. However, it is highly likely that tariffs will change over time, which will have great implications for national posts in terms of gathering revenue and building effective systems with customs authorities. At the very least, there will be a far greater requirement on data gathering for each item, as customs scrutiny will increase.

What does all this mean?
In short, there will be huge pressure to capture key information on each item. For items carried by couriers, this is relatively easy as full payment in advance is required and each item can be barcoded, thus ensuring full data capture at the item level.

For national posts this is far more difficult, as their mailstreams will typically have a greater proportion of low-value items, which may not have VAT payment up-front and will require the ability to identity key information such as contents, value and weight. They will also need systems that will enable receiving customers to be contacted for payment of VAT/dues if not paid in advance, the ability to store and retrieve such items pending payment, and effective payment systems for high volumes of individual transactions.

Data capture
Current CN22 and CN23 labels should contain all the information required for customs evaluation, namely contents, value and weight. However, despite international standards on CN22/23 design, we still see a huge variation in the design of these labels. In order for national posts to capture this information, there are several options:

Payment through VAT at the point of purchase: This will need the information captured by the on-line solutions, data transferred to the recipient country, and items identified as duty paid.

Manual data capture: This is still the only option available to many countries that rely on their workforce to capture information from CN22 labels. It is massively labor intensive, expensive and slow.

Automated data capture: This is a difficult task, and most OCR systems used in automated sorting cannot effectively read the data on these labels due to non-standard designs.

There are few solutions capable of reading large volumes of CN22 labels as an integrated part of a sorting system. The experience of implementing Lockheed Martin’s Minerva deep-learning Enrichment Device in live sorting operations since 2018 has shown how, this solution can be integrated with existing sortation and video-coding solutions to greatly reduce manual labor costs and increase sorting efficiency.

Other OCR providers have also been working on this issue, and there are solutions available for reading Chinese addresses and extracting information from CN22 labels, so this is likely to be an area of rapid development over the next couple of years.

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