Improving customs valuation system: TRCG for early formation of five valuation offices abroad

The Tax Reform Co-ordination Group (TRCG) of the Federal Board of Revenue (FBR) has strongly recommended early setting up of five valuation offices abroad to improve customs valuation system for accurate assessment of duties and taxes on the imported goods.
Sources told Business Recorder here on Thursday that the sub-group of customs has made some viable suggestions to streamline customs clearance systems. The decisions of the sub-group on customs have been communicated by the FBR to the members of the TRCG.The Sub-group of TRCG apprised the house that the Cabinet had approved setting up of five valuation offices abroad to improve Customs Valuation System.
These offices should be established with sonic modification as mentioned in the report. Physical and electronic tracking is needed to stop pilferage of containers. Similarly to avoid smuggling and under-invoicing through the Afghan Transit Trade, weigh bridges and container scanners need to be installed at entry and exit points. The Risk Management System should be developed and put in place in Customs.
The Sub-group stressed the need of strengthening post clearance audit and internal audit. The proposed training and career planning of the customs officers is necessary under the reforms. The recruitment, especially of preventive appraisers and inspector, should be done through Federal Public Service Commission.
The Sub-group further recommended development of an effective Customs integrity programme for which a committee consisting Customs officers and Members of RCG be formed. The World Customs Organisation's (WCO's) recommendations like the "Arusha Declaration" and WCO's compendium of such measures taken by various countries for their customs administration should be considered for creating a comprehensive code of conduct.
Ahmed Waqar, Member TRCG stated that the Sub-group felt that there were a lot of revenue leakages in the Customs due to administrative lapses and thus most of the recommendations made were related to administrative reforms and capacity building. He highlighted the major recommendations, details of which are provided in the report. He mentioned an earlier report on customs valuation and under-invoicing which they felt had effective recommendations. The Sub-group suggested that FBR alongwith the Sub-group in consultation with State Bank, Ministry of Commerce, Chambers and the Trade bodies, should finalise specific proposals, which could be placed before ECC for final approval.
The Sub-group highlighted the results of various reports on Pakistan Customs Computerised System (PACCs) and felt that PACCs was a controversial issue and some resolution needed to be made on that front.
Member of the TRCG Abdullah Yusuf agreed with all the recommendations made by the Sub-group on Customs. He said that most of the data relating to customs is available. A control account is needed for better monitoring so that monthly reports are generated for the top management, which highlight the opening inventory at each port, what is in transit, what was released and what tax was collected. The CEO, PRAL, clarified that such reports are now being generated.
The treatment of PACCs was discussed at length. Different views were shared which related from closing down PACCs gradually and bring in a new system, to using the system developed by PRAL, to adding on new modules to PACCs to bring its security up to date. Dr Nadeem Ul Haque apprised the house that PACCs was a basically a pilot. He was of the view that there is a cost in moving to a manual system, there is also a cost of taking six months to two years to moving to a new system. A cost benefit analysis needs to be done. He suggested that Agility and FBR may sit together and try and negotiate a solution.
Secretary Finance Salman Siddique stated that at this point the official stand is that PACCs should be removed if the governments want to disengage with Agility, then either of the two parties can go into litigation or the two parties can sit together and resolve the matter. He stated that there would be a cost of departure since there is no alternative system available straight away. Time has been sought from Agility as there is no overnight resolution. He suggested that a Committee may be formed which will start engaging with the firm rather than going into litigation. An assessment needs to be made of the factual position. The Finance Minister agreed that a practical way out of the situation should be found with ensuring a smooth transition. Chairman, FBR stated that the decision made by the Government earlier can be reviewed, and FBR will have no problems if a solution can be reached such as entering into a partnership with Agility, where FBR has the source code of the system.
The Finance Minister stated that the Government needs to decide whether it wants FBR to run it or whether it wants to contract it out. This should be an explicit decision based on preparedness of system future growth potential, conflict of interest, awareness of technology and costs associated. He requested TRCG to advise the best way forward in the national interest. It was decided that the Sub-group on Customs would make an integrated note and give specific proposals before the next meeting.