The Federal Board of Revenue (FBR) has taken important measures to check corruption in the customs department through tariff rationalisation and minimising interaction between the importers and customs clearance staff under the Pakistan Customs Computerised System (PACCs).
Experts in customs matters told Business Recorder here on Tuesday that the major cause of corruption in the customs department was mainly direct interaction between the customs officials and importers during clearance process. The higher rate of customs duty on imported goods also encouraged importers to indulge in corruption.
The physical examination of each imported consignment in the past not only resulted in delayed clearances, but also enhanced corruption. Thus, manual examination system, based on categorisation of import cargo, resulted in corruption within the customs department.
The PACCs clearance system has eliminated physical contact between the tax officials and the customs staff as the importer has no idea who is the appraiser or examiner to whom goods declaration (GD) has been marked. The facility of electronic filing of GDs and computerised clearance of consignments under categories of green channel etc has reduced clearance time from days to hours.
As the PACCs is only applicable in Karachi, other customs clearance system ie 'One Customs' working at other ports has incorporated 'valuation rulings' in the system for proper assessment of duties and taxes at the import stage. In the 'One Customs', the GDs can not be further processed till the valuation rulings have been applied.
In the past, the valuation rulings were bypassed to avoid application of actual customs value of the imported goods. Once the GD has been fed into the 'One Customs', the system is alerted if the valuation advice to proceed to the next stage of processing of GD is applied. The customs value of an imported item assessed at Karachi is known to all customs stations for uniform applicability of duty at other ports.
The customs values of imported goods can not be assessed below the values mentioned in the "valuation rulings" to avoid loss of revenue to the national kitty. The minimum customs values specified in the valuation rulings would form the basis for accurate assessment of duties and taxes. The consignments are not cleared in cases where customs values are not accurately applied at the import stage.
Sources said that the massive tariff rationalisation during last few years had resulted in reduction in customs duty on import of items. This encouraged importers to declare accurate customs value due to low rate of duty. It was observed during last few years that no mega scam in the customs department was unearthed due to automation and combined effect of measures to automatic clearances processes. The discretionary powers of the customs officials have been reduced with minimum human interference under the self-assessment scheme of automation.
The cases of under-invoicing are still taking place, but the percentage of such cases has reduced due to automation. The FBR has also implemented a system at the ports to accurately weigh the container. The matching of container's weight at the time of arrival of consignment in Pakistan with the actual weight at the port of destination also verifies contents of containers. During transshipment process, the department is planning to install 'tracker system' to monitor the bonded carriers from Karachi Ports to upcountry.
Experts said that the FBR had abolished the concept of 'customs groups' during examination and clearance of consignments under the PACCs and "One Customs" due to reports of corruption. It was found that the 'customs group' was the major cause of corruption in the customs department.
In the past, different chapters of the Pakistan Customs Tariff (PCT) were assigned to 'customs groups' for assessment of duties and taxes on specific items, goods or commodity. Chapter-wise distribution of the PCTs was made in the past for creation of 'customs assessment groups'.
For example, the importer of machinery already knew about the 'customs group' involved in the examination process. This resulted in collusion between the importers and the principal appraiser as well as the other appraisers assigned under him, as importers of a specific item already had prior information about the customs officers involved in the assessment process.
The system of 'customs groups' was abolished in the past due to persistent complaints of corruption. Each 'customs group' was headed by principal appraiser, and 3-4 appraisers were supervised by that principal appraiser. To check the menace of "group under-invoicing", the FBR has already constituted a committee including representatives of business and trade to reject the declared "transaction value" by importers.
It is extremely difficult to check "group under-invoicing" as a group of importers of the same commodity or an association can declare the same value of the imported item to enable him/them to under-invoice. This committee was constituted to resolve valuation disputes and control massive under-invoicing by levying accurate rate of customs duty on the imported consignments.
Sources said that the FBR has check posts across the country to check smuggling. The customs department is the prime anti-smuggling agency, which is legally empowered to control illicit trade. The customs check posts and mobile customs squads were abolished 4-5 years ago, which increased smuggling manifold. Now the check posts have been restored for checking smuggling. It is yet to be seen whether anti-smuggling strategy of the FBR would be able to check Bara-markets and commercial shops flooded with smuggled imported goods.
Sources said that creation of Directorate General of Post-Clearance Audit (PCA) Karachi has also assisted in checking consignments cleared under the PACCs. The consignments cleared through the risk-based system of PACCs have been checked through the PCA.
The DG PCA has the mandate to conduct post clearance audit of the consignments cleared through the computerised system. The agency has the authority to investigate cases of commercial and trade related tax frauds particularly fiscal fraud against the importers under section 32A of the Customs Act, 1969.
The organisation would have ample powers to maintain National Historical Database (NHD) and traders' profiles and records to properly conduct scrutiny of import-related data to check evasion of duties and taxes on clearance of consignments. One of the major causes of misdeclaration and under-invoicing was wrong applicability of valuation rulings on imported consignments that resulted in inaccurate assessment of customs duty.
The applicability of uniform valuation rulings on the import of each commodity is necessary for accurate assessment of duties and taxes at all the ports. The valuation rulings helped in determining value of each item for proper assessment of duties and taxes.
Sources said that the Board has made it compulsory for all importers to declare packing lists and invoices inside the containers for clearance of imported consignments to check misdeclaration and under-invoicing of import cargo. The provisions of the Customs Rules 2001 are available in the law for the last many years, but were not properly implemented in the past. The presence of actual invoice pasted inside the container exposes all kinds of under- invoicing and misdeclarations.
The absence of packing list and purchase invoices inside the imported container was the major reason for misdeclaration and under-invoicing. The packing list gives complete details of packed consignments, and invoices disclose the actual customs values on which the foreign sellers sold the goods to the Pakistani importers.
In the absence of foreign sellers' invoices, it is very easy for the unscrupulous elements to show fake invoices to the customs department in an attempt to reduce customs duty. The presence of actual invoice inside the door of the container leaves no room for the tax evader to show fake/forged invoices, as the actual customs value and price of the imported commodity, purchased from foreign country, would be known to the customs department.
Thus the importer cannot contest the applicable duty. The invoices pasted inside the imported containers cannot be changed under the computerised clearance system. Sources said that the customs department has also decided to take strict action against customs officials involved in processing of Goods Declarations (GDs) without complete specifications and description of goods to check massive under-invoicing and misdeclaration of goods.
The customs department has to ensure that GDs filed by importer indicate complete description of goods and specifications. Customs experts said that the technique used to evade customs duty was simple: avoid specifications of the imported goods to levy low customs values on imported goods. The incomplete GDs processed through "One Customs" clearance system would not be entertained.
However, it is impossible to clear incomplete GD through the Pakistan Customs Computerised System (PACCs), as complete specifications of the imported goods have to be mentioned for acceptance of GDs. The machine will not process the GD through PACCs till a complete description of goods has been specified. And no column can be left blank. Besides, any customs official who entertains GD without complete specifications would be punished under the customs laws, experts added.