A puzzle - balancing ethics and profit.

[Amrita]

Hello all,

I am not sure whether this the right forum to post this thread. But as it is closely related to pearl business and thus pearl industry, I thought this may be the most appropriate place.

Lately I have been rather disturbed on reading on a few pearl websites, mostly based in China... that they understate the value of the pearls being shipped out of China or call them gifts to save any "hassles in Customs". Although, on the face of it, these kinds of transactions are beneficial both to the vendors (they get more orders due to cost saving for their customers) and to the customers (as they get benefits of not having to pay duties in their country)....is this really "right"? I know right and wrong have different definitions for different people, but for people like us who try to follow all rules and laws (and there are some of those around too in the pearl fraternity, I am happy to say), are we being penalized for our honesty, rather than rewarded?

I will appreciate any comments on this issue from the pearl fraternity.

Puzzled,
Amrita

[Marianne]

Good to hear from you Amrita. My grandfather used to say, "Honesty is the best policy". He was a wise and successful and respected businessman.

[jshepherd]

Don't consider it. We sell something that only sells based on trust, reputation and integrity. If it is comprised, what is it worth. Cheaters may prosper for the short term, but in the long run, they will get caught. And when they get caught, the customer gets caught. It is risking the seller and the customer.

[pearlescence]

Of course it is an irritation to see some getting away with dodging taxes and therefore being able to charge less. But think of the worrying they probably have to do in the middle of the night. Those of us who are honest and pay all taxes and duties can hold our heads up high and sleep at night.
And it all goes into building your reputation as a straightforward and honest pearl seller. Your good reputation is the gold which they will never have.

[Amanda]

I agree with Wendy. Also, if a seller offers to help me rip off Customs and Excise, why wouldn't they try to rip me off, too?

And you can get caught:

The head of Ireland's largest fruit and vegetable producers has been jailed for six years for a 1.6m euros (£1.3m) scam involving the importation of garlic.

Paul Begley, 46, of Woodlock, Redgap, Rathcoole, avoided paying customs duty on more than 1,000 tonnes of garlic from China by having them labelled as apples.

http://www.bbc.co.uk/news/world-europe-17320460

[Amrita]

Good to hear from you Amrita. My grandfather used to say, "Honesty is the best policy". He was a wise and successful and respected businessman.

Thanks Marianne! Your grandfather was so right and a good man.
I think I may be 2 of the 3 things that he was to a limited extent though, but I have yet to be successful!

[Amrita]

Don't consider it. We sell something that only sells based on trust, reputation and integrity. If it is comprised, what is it worth. Cheaters may prosper for the short term, but in the long run, they will get caught. And when they get caught, the customer gets caught. It is risking the seller and the customer.

You're right of course Jeremy. Thanks for the reassurance, which we all need from time to time.

[Amrita]

Of course it is an irritation to see some getting away with dodging taxes and therefore being able to charge less. But think of the worrying they probably have to do in the middle of the night. Those of us who are honest and pay all taxes and duties can hold our heads up high and sleep at night.
And it all goes into building your reputation as a straightforward and honest pearl seller. Your good reputation is the gold which they will never have.

Well said, Wendy! I agree absolutely, but probably needed to know that I am not the only one feeling "irritated" by the deeds of some. It does get to you now and then. But yes, you're right - I do sleep soundly at night. Thanks so much! :-)

[Amrita]

I agree with Wendy. Also, if a seller offers to help me rip off Customs and Excise, why wouldn't they try to rip me off, too?

And you can get caught:

The head of Ireland's largest fruit and vegetable producers has been jailed for six years for a 1.6m euros (£1.3m) scam involving the importation of garlic.

Paul Begley, 46, of Woodlock, Redgap, Rathcoole, avoided paying customs duty on more than 1,000 tonnes of garlic from China by having them labelled as apples.

http://www.bbc.co.uk/news/world-europe-17320460

Thanks A! And you are so right. Thanks for the news link too - that is the exact kind of thing I was talking about. Garlic labelled as apples? Wow.

[pearlescence]

I'm only surprised that customs could tell the difference between apples and garlic.

[Lindaphillipsbong]

Hello all:
Just to be a fly in the ointment here .... when I have items shipped to me via a shipping company, I often pay very high brokerage fees, and maybe customs/duties. If the item comes by mail, usually not, but maybe. It seems to be hit and miss. I have been charged $35 in fees for a $20 T-shirt.
Conversely, if I pick up an item that has been shipped to a USA parcel/mail company (near my home in Canada), I always am honest and claim the exact items. The border officials always wave me through and do not expect me to pay any fees. Sometimes the amounts are very much over the allowable daily limit. It seems that in one jurisdiction there is one set of rules, and in another it is different. This is frustrating.
Mind you, I am talking Canada/USA, and we have some type of "free trade" thing going on supposedly, so who knows.
All those people driving across the border, putting their money into American businesses, and filling with American gas, hurting our economy, they get to buy everything duty and custom free? Whereas others stay home and use shipping, and pay enormous fees to brokerage and shipping companies, and lord knows who else. I am confused by it all. Chuckle.
I am a relative rookie with this online purchasing thing, and shipping, and I welcome some enlightenment on the subject.
Linda.

[morphius]

Speaking strictly from a Canadian perspective as well, imported items are subjected to the following additional charges;
1) Duty @ 8% of shipments claimed value
2) Taxes @ either 5% GST and/or 7% to 9% PST, or 13% HST (depending on which Province you live in).
3) Brokerage - this is a fee charged by the delivery company for paying the Duty & Taxes on your behalf when the item cleared customs. The fee is typically between $20.00 and $35.00 CDN depending on carrier.

This means (because I live in Ontario), that I pay 8% Duty + 13% HST + $25.00 Brokerage. If I order $3,000.00 CDN worth of pearls, I'll pay an additional $655.00 in these fees. Occasionally, items coming to me through USPS to Canada Post or EMS to Canada Post, which get through customs with absolutely no duty, tax or brokerage fees...but this is rare and no doubt unintentional. But I agree that at first, these additional fees seem (at first), to raise costs to almost ridiculous amounts.

However, if my business is registered and properly setup, then the Duty & Brokerage are considered operating costs (which are tax deductible). Any taxes I pay out is compare against any taxes I collect on my sales. If I pay out more in taxes, then I get a refund from the government. Additionally, some carriers offer business accounts which result in much lower brokerage fees.

Long story short...there shouldn't be any reason a business needs to intentionally avoid import charges (in Canada anyways), because the mechanisms are setup to deal with these costs. I imagine similar business mechanisms would be in place in other countries as well.

As for rigging a sale so a customer is able to avoid import duties and taxes (and whatever else), IMO, these are customers we don't want anyways. In my experience, the customer who buys solely based upon avoiding taxes is not someone who is driving more customers to you nor are they long term customers - they're always out looking for the lowest price...quality and honesty are secondary to them. These people are also most likely to get scammed because they're willing to take more risks just to save a couple $$

[pearlescence]

Brokerage fees are nothing to do with the government levying a tax or duty on something. When I bring pearls back from Hong Kong I could ship them and pay tax and a brokerage fee as levied by the shipping company for clearing customs for me. Instead I chose to bring them back with me and take them through customs myself (takes about 20minutes here and about an hour of paperwork beforehand). No brokerage fees but still VAT...
Different items will have different duty added - loose pearls on temp strands for eg seem to attract no duty. But There is still VAT which is the local purchase tax (presently at 20%) Gold and silver findings attract 2% duty plus the VAT
Finished jewellery does attract the imposition of duty - one reason why we don't buy anything ready made
I will say that sometimes when exporters underdeclare shipped items value they are trying to be helpful to you (and probably hide some of their own profits?)

[morphius]

Brokerage fees are nothing to do with the government levying a tax or duty on something. When I bring pearls back from Hong Kong I could ship them and pay tax and a brokerage fee as levied by the shipping company for clearing customs for me. Instead I chose to bring them back with me and take them through customs myself (takes about 20minutes here and about an hour of paperwork beforehand). No brokerage fees but still VAT...
Different items will have different duty added - loose pearls on temp strands for eg seem to attract no duty. But There is still VAT which is the local purchase tax (presently at 20%) Gold and silver findings attract 2% duty plus the VAT
Finished jewellery does attract the imposition of duty - one reason why we don't buy anything ready made
I will say that sometimes when exporters underdeclare shipped items value they are trying to be helpful to you (and probably hide some of their own profits?)

Apologies if I gave the impression that brokerage fees where associated with government - because (as you've already said), they're not. I simply meant that brokerage fees paid are a tax deductible business expense (in Canada at least anyways).

[Adeline Leigh]

LOL, Wendy. Your comment on garlic and apples, that is, since I can't do a "reply with quote" as the function is malfunctioning. Aside, can I tell you once that my entire gems package from Jaipur had to be held, inspected and fumigated by the Australian authorities as the seller declared the contents as watermelon tourmaline. They'd thought I was importing agricultural products (a no-no) into Melbourne!

Reading all the posts on brokerage fees on top of tax and custom fees, I guess we in Oz and Singapore are lucky. When I am here, I shop online 50% of the time, free trade agreements with Singapore make imports so easy. I have everything I purchase in the US forwarded to a freight processing centre in Oregon (0% tax in that state) and all my shipments are consolidated. On average, for 3 packages (6 bottles of shampoo + 2 skirts + 4 strands of pearls) forwarded from Oregon to Singapore I usually pay a flat $25, no other charges. Goods are taxed only when each shipment is above $300 so all in all a good deal.

Amrita, good on stance w.r.t ethics and integrity. But can I personally confess? I am not averse to asking a seller to under declare the worth of the goods in order to save me some on the import taxes. But wheter the seller voluntarily does it, agrees to doing it when cajoled or flat out refuses has neither encouraged nor hindered any sale. What I meant to say is if I like it enough, I will buy it, irregardless of whether the vendor is going to under declare the value of the shipment (voluntarily or otherwise) or not. It doesn't bother me at all.