Global cross border electronic commerce has been growing exponentially over the past few years. The pandemic has accelerated this already growing economy with more people shopping online, resulting in a 40% increase (source). This growth has presented challenges and opportunities for the Canada Border Services Agency (CBSA) in that low value imports shipped by couriers (CLVS) are not held to the same standards as other commercial shipments.
Auditor General Report Recommended Improved Validation Of CLVS
Canada Border Services Agency (CBSA) like many customs agencies, was forced to review its processes and introduce a better system to risk-manage cross-border e-commerce. In March 2019, Canada’s Office of the Auditor of Canada (OAG) issued a series of reports including Taxation of E-Commerce. The OAG audited the CBSA, the CRA and the Department of Finance with the view of ensuring that all GST/HST was collected appropriately on e-commerce products. The report noted “The Canadian sales tax system must keep pace with e-commerce and adapt to the challenges and opportunities it presents…..Further, the Government of Canada must ensure that everyone who should remit sales tax does so and that taxes are collected fairly and effectively.” (source)
The OAG Report recommended that “as soon as possible, the CBSA should review the Courier Low Value System (CLVS) to improve the validation and collection of the GST, the HST and the PST.” (source)
CBSA agreed with the recommendations and committed to reviewing the CLVS to improve the validation of taxes collected.
Work began right away.
Moratorium On CLVS Applications
CBSA placed a moratorium on applications to the CLVS Program with an eye on modernizing the program. A Management Response Action Plan was put into place after meeting with internal and external stakeholders.
CBSA committed to:
- “Review and update the means by which goods are accounted for so as to ensure that taxes (including provincial taxes) are collected - April 2022
- Develop an e-commerce strategy focusing on trade facilitation, safety and security as well as revenue collection - March 2020
- Participate in the World Customs Organization (WCO) working group to identify revenue collection models and evaluate other countries best practises - September 2019
- Examine options to further automate the CLVS Program including the ability to receive, process and analyze customs data - Fiscal year 2022-2023
- Renew focus on compliance activities in the CLVS program by conducting statistically valid courier compliance activities based on courier data to ensure revenue and security related requirements are met (March 2020)”
CBSA committed that the Management Response Action Plan would be completed by 2022-2023. (source)
CBSA’s E-commerce Strategy
CBSA got to work in mid 2020 and formulated an e-commerce strategy. The strategy was necessary in order for the Agency to adjust and adapt to the increasing volumes of low value shipments processed at the border. It focuses on putting some muscle into the legal and regulatory authorities as they relate to low value shipments, building infrastructure and IT enhancement, adjusting CBSA operations and expanding on current partnerships.
CBSA quickly began to work to strengthen and modernize the legal and regulatory frameworks.This work involves amending the regulations so that couriers provide advanced electronic data for low value goods. This will allow, as it does in other modes, the ability for CBSA officers to risk assess the goods prior to their arrival.
CARM And CLVS
Following the OAG Audit, CBSA reviewed the means by which goods are accounted for in the CLVS program in order to ensure taxes, including provincial sales taxes, are fully reflected. Whether the goods were accounted for on a B3 or the goods were treated as casual goods it was difficult to ensure compliance with respect to the payment of duties and sales tax.
CBSA intends to fix this problem with the CBSA Assessment and Revenue Management (CARM) project.
Currently CBSA is in Release 1 with the implementation of CARM. The last release which is scheduled for spring of 2022 will include the accounting for CLVS.
World Customs Organization
CBSA has been working with the WCO. The Agency co-chaired with an industry representative the WCO working group that has developed a global E-Commerce “Cross Border E-Commerce Framework of Standards” that was presented and approved by the WCO Council in December.
The CBSA’s CLVS Interim Solution: CAP
CBSA has developed and is already testing an interim solution to alleviate the operational challenges associated with manual risk assessment processes of the CLVS Program.
This interim solution is called The Courier Analytics Portal (CAP). The Portal allows for electronic pre-arrival data to be displayed in an on-screen format to border services officers (BSO) in a handheld device. The BSO is able to risk assess and target shipments for further examination. The CAP was initially piloted with two couriers at Hamilton International Airport and was then expanded to Vancouver and Calgary with other couriers. Further expansion is expected in Toronto, Montreal and Ottawa.
The CAP will replace the current practice of using the courier’s privately owned systems. The CAP is an application that incorporates data and analytics and uses artificial intelligence in an easy-to-use process. CAP allows CBSA officers to better risk assess shipments and expedite the decision making process so that only those goods which require further examination are set aside and low risk goods are not held up. “CBSA hopes to have a prototype of the new low value shipment platform in 2021.”
The CBSA has invested 7.4 million in developing this LVS platform which will be scalable, iterative and supported on mobile devices. The system will interface directly with the courier systems’ for the purposes of selecting items for referral and/or seek more information. CBSA is currently in the planning phase. The Agency is seeking further funding for a full solution. The project is expected to be completed by 2023-2024. (source)
Compliance Activities In CLVS
CBSA is developing a stronger CLVS Compliance Framework. Currently for CLVS, the CBSA Administrative Monetary Penalty System (AMPS) applies only to late accounting. More contraventions need to be explored such as reporting goods that are not eligible on the Cargo Release List (CRL) or presenting the CRL to CBSA late. The CBSA has put this CLVS Compliance Framework on hold since March 2020 due to the pandemic.
While the CBSA looks to improve its processing of e-commerce imports, the current process of the CBSA Low Value Shipment Program is explained here.
If you need any assistance with the CLVS Program, our Trade Advisors can assist with all aspects of the program.