6 typical jugaads Indian businesses should avoid while exporting

Summary-

• The customs authorities all around the world, including the Indian Customs, are digitizing the compliance process, making them faster, more accurate and equally stringent.
•  In order to avoid the hassle, many Indian businesses find easy ways outs; Jugaads, as we like to call them.
• Avoid the following commonly known jugaads to escape from trouble while selling across international borders.

In September 2017, there was quite a tittle-tattle about the word Jugaad making it to the Oxford dictionary. We Indians are so jugaadu, that our native word made it to the English language. Even while exporting, many Indian businesses come up with great jugaads to avoid the hassle of compliance, but these aren’t always legal.

The compliance jugaads was fairing well earlier when most of the customs authorities used manual processes, but since the last couple of years, many governments have taken active steps towards digitization, and non-compliance can lead you into troubles in the name of penalties, fines and even serious troubles like loss of import-export privileges in some cases. Here is a list of the most common Jugaads that your organization should avoid while selling across international borders for safe and seamless business.

The most important factors to be considered while calculating  selling prices to international customers are  tax and duty. You can find accurate rates to charge tax with the help of HS codes. HS codes stand for harmonized system codes- a globally recognized system that helps you classify your products into tax categories and ultimately find the correct tariff rate for all sorts of products to be sold globally. Be it a pair of shoes or a nice top. Everything is classified to determine the accurate rates and then levy the correct tax charge. Assigning HS codes is a lengthy task, especially in the case of a large volume of transactions or a variety of products. Many organizations find the task difficult and sometimes even impossible.

Many organizations often guess the HS codes and hope that it was right. But it doesn’t work that way. They depend on multiple factors like the category of product, location of sale and destination of the customer. For example, HS codes for footwear would change depending on whether they are made of leather or have a rubber sole and whether they are shoes or sandals. It doesn’t take an expert to say what can go wrong if you do guesswork in HS codes. 

Most people believe in what the shipping companies say or what the stakeholders say regarding tariff rates, HS codes and other rules and regulations. So instead of consulting a tax expert, they go with what the stakeholders suggest. But it is important to do your research, read tax content and the best, contact an expert to save yourself the trouble of staying non-compliant.

Another common jugaad is that of aggregation. Organizations usually assume that two things that should ideally be classified distinctly based on the raw materials used or the usage are just the same and charge a uniform rate for the two. For example, HS codes for fresh Orange, canned prepared or preserved orange and other prepared and preserved citrus foods are all different in India. So it depends on how the country in which your customer is based classifies your product. But if you go wrong in assigning the perfect code, such errors and misappropriations are commonly noticed at customs, and you are bound to meet heavy penalties.

Another commonly known way resorted to by sellers is misrepresentation. Many retailers fail to disclose, sometimes intentionally, the actual landed costs. The hidden costs of the transaction come to the customers as a surprise, and they are not happy. The outcome is a bunch of angry customers and bad reviews for businesses. The best way of doing it is with disclosure. That way, your customers are well informed, and you don’t have to deal with unhappy customers later.

As the age-old saying goes, “it’s not if you’ll get audited, but when.”

Documentation is just as necessary in the process of compliance as compliance itself is. When you are doing business internationally, you need to be audit-ready at all times. You should be able to summon required certificates or documents as and when demanded by authorities. Organizations have to keep a check proactively on every decision and its impact and whether the decision is in line with the standard accounting practices and relevant rules and regulations from time to time.

Inadequate documentation will only lead you into trouble, fines and penalties.

Well, that could be true in a different situation, but a little research about the waters and swimming techniques will harm no one. Just like that, while doing international selling, a little research on compliance would save you time and make it seamless for you.

Indirect tax regulations keep changing from time to time. Keeping up with the changing rules becomes an arduous task, especially for organizations selling into multiple locations and with numerous products. A higher volume of transactions only adds to the trouble, and organizations face compliance complexities.

Avalara’s software solution for cross border businesses helps resolve these problems and enables organizations to navigate them easily. Say no to jugaads! Book a free demo today. We keep posting tax content over our blog and social media. While more and more people understand the relevance of tax content, you can get ours without any charges. Visit here and stay updated with the latest rules and regulations relevant to your business.