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Southeast Asia starts to strictly investigate the "grey customs".

Recently, some media reported that the Indonesian Illegal Import Task Force found a batch of illegally imported goods worth 40 billion Indonesian rupiahs in the Kamal Muara area of Penjaringan, located in the north of Jakarta. These goods were imported into Indonesia by foreigners through renting warehouses and selling online.

The seized items include various types of electronic products, reflex massagers, mobile phones, tablets, sprayers, e-cigarettes, children's toys, and clothing.

This is the first action since the establishment of the Illegal Import Task Force, which will further intensify its crackdown in the future to prevent illegally imported goods from entering the market.

Apart from Indonesia, Vietnam has also taken action. It is reported that Vietnam will start seizing several large overseas warehouses on August 5, and the warehouses are currently under close surveillance. Many of the products in the monitored overseas warehouses enter the country through smuggling.

Under the strict investigation of "grey customs" by various countries, cross-border e-commerce in Southeast Asia faces stricter compliance challenges.

01

Reduce Costs by Using "Grey Customs"

Currently, ASEAN is the third-largest economy in Asia and the fifth-largest economy in the world. Data shows that Southeast Asia has been the fastest-growing region globally in the past few years (growing at an average annual rate of 5.5%); some believe that Southeast Asia will become the third-largest economy in the world by 2030.

Therefore, doing business with Southeast Asia has become a general trend.

Taking China as an example, according to data from the Economic and Commercial Section of the Chinese Mission to ASEAN, in 2023, the trade volume between China and ASEAN reached 6.41 trillion yuan (911.7 billion USD), and the two sides have been each other's largest trading partner for four consecutive years. According to data from China Customs, the total trade value between China and ASEAN was 3.36 trillion yuan, up 10.5%, accounting for 15.9% of China's total foreign trade. Among them, exports to ASEAN were 2.03 trillion yuan, up 14.2%; imports from ASEAN were 1.33 trillion yuan, up 5.2%; and the trade surplus with ASEAN was 699.49 billion yuan, up 36.5%.

Cross-border e-commerce has become a business opportunity in Southeast Asia. According to an eMarketer report, the revenue of the Southeast Asian e-commerce market is expected to reach 113.9 billion USD in 2023, with e-commerce sales growing by 18.6% in 2023, far exceeding the average global e-commerce growth rate, ranking first globally for three consecutive years.

On the platform side, platforms such as Shopee, Lazada, and TikTok Shop have successively launched fully-managed and semi-managed models, providing convenience for sellers to deploy cross-border e-commerce. Riding on the wave of cross-border e-commerce, many cross-border parcels are shipped to Southeast Asia.

However, starting last year, some countries in Southeast Asia began to increase tariffs on imported goods.

In 2023, Indonesia's Most Favored Nation (MFN) tariffs for eight new commodities officially came into effect, with tariffs ranging from 5% to 25% on textiles, 5% to 30% on footwear, 15% to 20% on bags, and 10%-15% on cosmetics. Among the new commodities, the tariff on imported bicycles is 25%-40%, with electric bicycles at 40%, watches at 10%, cosmetics at 10%-15%, and steel at 0%-20%.

In January 2024, Malaysia imposed sales tax on low-value imported goods and VAT on logistics service fees generated by e-commerce platforms. In June, Thailand also decided to impose a flat 7% VAT on all imported goods sold on platforms without distinction.

This also means that some businesses will choose the "grey customs" route to save costs. According to information, "grey customs" involve specialized customs clearance companies providing "chartered flights and taxes included" or "chartered trucks and bonded warehouses" methods for importing goods, where the customs clearance company is responsible for fulfilling customs clearance procedures and collecting taxes but generally does not provide exporters with customs declaration documents.

Therefore, "grey customs" can reduce customs duties and VAT, as well as customs clearance time and costs. In contrast to "grey customs" is "white customs," which refers to the clearance method of entering through normal customs inspection, which is protected by law and is a formal way of goods circulation. Companies using "white customs" may encounter competition from companies using "grey customs" in terms of certain commodity prices.

02

E-commerce Becomes a "Hard-hit Area"?

To protect local industries and increase tax revenue, some Southeast Asian countries have cracked down on illegally imported goods.

According to media statistics, in 2022, the Indonesian Directorate General of Consumer Protection and Trade Order destroyed illegally imported goods worth approximately 11 billion Indonesian rupiahs; in 2023, the Indonesian Ministry of Trade destroyed imported second-hand clothing and footwear worth 174.8 billion Indonesian rupiahs; and in 2024, there have been multiple seizures of illegally imported goods, including clothing, textiles, electronics, ceramics, etc.

However, illegal imports continue despite repeated bans. According to Indonesian disclosures, there is a significant discrepancy between Indonesian import data and the number of illegally imported goods. BPS data for textiles and textile products, clothing and accessories, ceramics, electronics, cosmetics, footwear, and other textile finished products differ significantly from the data recorded by the country of origin, with the country of origin recording a value of USD 360 million compared to only USD 116 million recorded by Indonesia.

Based on this, on July 19, Indonesia officially established a special task force to rectify illegal imports, overseeing commodity types including textiles and textile products (TPT), other textiles, electronics, footwear, clothing, ceramics, and beauty products or cosmetics. It is revealed that this special task force will be valid for one year, and the government can extend its term if necessary and add more products. Meanwhile, the task force has already identified locations commonly used for illegal import routes and understands the methods used to smuggle illegally imported goods.

After the first operation to seize illegally imported goods, Trade Minister Zulkifli Hasan stated that these illegally imported goods, sold online, had impacted local stores and the overall economy. There may be multiple similar warehouses of illegally imported goods in each Indonesian province.

Apart from Indonesia, Vietnam is also taking action. It is reported that Vietnam plans to start seizing several large overseas warehouses on August 5, and these warehouses are currently under close surveillance. This operation will target goods suspected of entering the Vietnamese market through smuggling, including high-value digital products such as mobile phones and tablets, as well as toys and figurines suspected of infringing intellectual property rights.

Meanwhile, Vietnam's National Steering Committee 389 (the National Steering Committee for Anti-Smuggling, Anti-Trade Fraud, and Counterfeit Goods) held a meeting stating that while e-commerce is developing vigorously, many weaknesses have been exposed in management, such as identifying sellers' identities through mobile phone numbers. However, a large number of mobile phone numbers have not been authenticated so far, making it difficult to prevent the smuggling of goods through e-commerce.

At the same time, the past crackdown on counterfeit goods has shown that on social networks such as Facebook and Zalo, many sellers are located in remote mountainous provinces, making it difficult to track and arrest them. The National Steering Committee 389 recommends that relevant departments urge e-commerce platforms to take responsibility, strictly screen and inspect information, and constrain seller transactions, thereby ensuring product quality and protecting consumers' rights.

03

Continuous Compliance Challenges

With the rapid development of the e-commerce industry, Southeast Asian countries are gradually improving their industry policies, and both platforms and sellers face compliance challenges.

In December 2019, the Indonesian government stated in Government Regulation No. 80 of 2019 that enterprises or stores selling on cross-border e-commerce platforms must have a business license issued by the government to determine the number of e-commerce businesses.

To protect local small and medium-sized enterprises, Indonesia issued Regulation of the Minister of Trade No. 31 of 2023 in September 2023, which prohibits social media platforms from engaging in merchandise sales and trading activities and requires that the minimum price of imported goods on e-commerce platforms not be less than 1.5 million Indonesian rupiahs (approximately USD 100). At the same time, imported goods sold in Indonesia need to meet the white list requirements, satisfy Indonesian government certification requirements for food, drugs, and cosmetics, and e-commerce platforms cannot sell self-operated products.

TikTok Shop was therefore temporarily shut down and eventually returned by merging its Indonesian business with Tokopedia.

As one of the fastest-growing e-commerce countries in Southeast Asia, Vietnam is also stepping up the formulation of relevant policies. In May, Vietnam's Ministry of Industry and Trade stated that in 2024, the national market management force will focus on key regions and products, formulating major inspection and control plans; it will not encourage smuggling activities or trade fraud, especially those conducted through e-commerce.

In June, Vietnam's Ministry of Industry and Trade stated that the Ministry advised domestic manufacturers to focus on improving product quality, enhancing product competitiveness, and promoting the campaign "Vietnamese people prioritize using Vietnamese products." In the future, the Ministry will continue to implement solutions such as operating and upgrading the e-commerce management portal and advancing the handling of consumer complaints and reports; strengthen inspections, seriously handle violations, and minimize unhealthy practices in the e-commerce environment.

E-commerce tax revenue grew by more than 16% in 2023 compared to 2022, but there are still losses in tax revenue. Data shows that Vietnam has investigated a total of 31,570 organizations and individuals for violating e-commerce tax requirements over the past three years. Vietnam's Ministry of Industry and Trade is actively cooperating with the tax department and the Ministry of Finance to share data from over 900 websites and nearly 300 e-commerce transaction websites to verify and strengthen e-commerce tax management.

According to media reports, Vietnam's Ministry of Finance has also announced a series of measures to make reasonable amendments to relevant laws and regulations. At the same time, it is suggested that e-commerce companies file tax returns and pay taxes on behalf of individual sellers on the platform, thereby simplifying the filing process and reducing administrative costs for the entire society. In the future, it is necessary to strengthen tax administration in the e-commerce sector, covering various e-commerce forms such as platform transactions and live streaming.

As supervision intensifies, the illegally imported goods appearing on e-commerce platforms will also decrease. For Southeast Asian countries, the e-commerce industry will become more standardized, which can bring more tax revenue to the country and, to a certain extent, ensure the development of local industries. For cross-border sellers, they also need to face changing policies and adjust their business strategies to continue reaping the benefits of the Southeast Asian e-commerce market.

Author | Fanie

Source | WhaleDimension (ID: WhaleDimension)

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