Post clearance audit in budget 2007-08: CBR to select high-risk importers as test case

The Central Board of Revenue (CBR) will launch Post Clearance Audit (PCA) in budget 2007-2008 to select around one-two percent of high-risk importers for test audit based on their corporate information including third-party data of banks and clearing agents.
The PCA project director, Ali Salman Abbasi, clarified this to the importers and exporters in a workshop held on Thursday that the importers would be selected for audit, irrespective of the fact that they are a multinational company or a small entity. Selectivity criteria may select any one ie a specific commodity group, big, medium or small importer.
In the coming budget, test run of the system would be conducted which would be replicated across the country within one year. Selection procedure may involve checking of historical database of importer, price research system, corporate record database and stocks in the warehouses etc.
Responding to a query, he said that databank has yet to be established but the basic system has been provided to the CBR for launching the project. Ireland, Japan and Singapore have centralised database systems on real time basis, which are linked with audit.
There are chances that the Directorate General Valuation and PCA would separately carryout their functions, he added. Out of total 40,000 active importers 3 percent cases for PCA would only be selected after making this system fully operational. It is impossible to conduct 1200 audit (3 percent) of importers in one year. So initially one percent importers could be selected for audit. About 100 audits in one year seemed to be reasonable with the available workforce and infrastructure.
The PCA system would never level allegations of under-invoicing or under-valuation, unless there is a solid documentary proof of it. The powers of over-ruling the system would be available to the concerned tax officials.
He said that importers should not worry about the short-recovery notices or raids on their business premises under the PCA. The PCA team can only confront an importer with sufficient evidence of wrongdoing and equal opportunity would be provided to the importers to submit the necessary documents.
There would be a two-stage appeal process available to the importers/exporters, for contesting the system''''s observations. PCA authorities also referred to section 25 of the Customs Act, 1969 for adoption of proper valuation in disputed cases.
If notices were being received for PCA purposes, 15 days to 3 weeks time would be given to the importers for collecting data. Audit intimation along with the charter of rights would be dispatched to the importers selected for the PCA. Responding to a query on maintenance of record, he said that the record keeping period was reduced from 5 to 3 years for importers.
He said that there are three pillars of model customs management including self-assessment, risk management, audit-based controls and risk profiling to verify compliance of importers.
He said that the importers have been divided into green, yellow and red categories for clearance purposes. Mostly 95 percent of the consignments would be cleared under the green channel facility, while high-risk would be subjected to detailed examination.
He said that the stakeholders in the whole process would include importers, exporters, transport, bank, shippers, cargo handlers, manufactures, insurance, clearing agents and others. For third party audit, the PCA can demand documents from any relevant organisation including banks dealing with the business transactions of the importers. Risk rules for income tax and sales tax would also be framed under the increased scope of selectivity criteria, he added.