The Automated System for Customs Data

The Automated System for Customs Data is a computerized system designed by the United Nations Conference on Trade and Development (UNCTAD) to administer a country's customs. In 2004 there were more than 50 operational projects with expenditures exceeding US$7 million. It is the largest technical cooperation programme of the UNCTAD, covering over 80 countries and 4 regional projects.

There are three generations of ASYCUDA in use: ASYCUDA 2.7, ASYCUDA++ and ASYCUDA World. They were built using different paradigms and solutions available at conception  ASYCUDA World was the most recent and least used as of early 2009. UNCTAD's aim was to build a computer system to assist customs authorities (or their local equivalents) all over the world to automate and control their core processes and obtain timely, accurate and valuable information to support government projections and planning.

 

Duty-dodging in Bangladesh

Counterfeit counterfoils

Sep 3rd 2013, 0:51 BY THE ECONOMIST  Main Link 

IN THE five years to 2005 Bangladesh had the unfortunate distinction of languishing at the very bottom of Transparency International’s corruption perceptions index. It has fared little better since. When the World Bank’s president, Jim Yong Kim, forcefully stated his commitment to curb crony capitalism under his watch earlier this year, he used Bangladesh as an example of how the bank would punish “insufficient response by the authorities to the evidence of corruption”. The bank had just cancelled funding for South Asia’s largest donor-funded infrastructure project, a $3 billion bridge across the Padma river, citing alleged corruption by Bangladeshi officials.

Yet it is surprising how little attention donors pay to the biggest form of graft in Bangladesh, which, if fixed, would leave the government with enough cash to double health spending and to pay for an infrastructure project as large as the Padma bridge every two years.

The corruption in question is fraudulent trade invoicing. Take exports of spectacles from China to Bangladesh, for example. The Bangladeshi importer asks the Chinese exporter to invoice for $1 for every pair of spectacles, though the price agreed between the two is $10. The importer thus pays only a fraction of the import taxes he owes the state. For the Chinese exporter, underinvoicing makes his product more competitive against those not prepared to falsify invoices. (He also gets round foreign-exchange regulations in China, which require him to turn over his proceeds on the glasses to the central bank.)

In practical terms, the importer pays $1 through official channels (using a letter of credit) and settles the remaining $9 by using the hundi system, an informal system of money transfers. He hands that sum to a hundi dealer in Bangladesh. Another dealer in Dubai, say, uses a money-transfer agent to balance accounts. He sends $9 in hard currency to the importer’s offshore account, out of which he then pays the Chinese exporter. No money crosses Bangladesh’s borders, and the currency movements recorded show no link to the original trade transaction.

The sums of money involved are big. Forrest Cookson, an American economist and expert on Bangladesh’s economy, reckons that if the practice of underinvoicing were stamped out, the government could increase its tax-to-GDP ratio by 1.5 percentage points. As it is, the ratio remains one of the lowest in the world, despite a fourfold explosion in trade in the last decade. Bangladesh also ends up paying a lot more for its imports, because importers who save on duty can afford to trade with more expensive suppliers (thus squandering an estimated $3 billion a year in foreign exchange). The problem has worsened following a surge in trade with China, which has risen sevenfold between 2002 and 2012, to $8.5 billion. Underinvoicing on Chinese imports alone could be as high as $3 billion.

Fraud is more appealing thanks to Bangladesh’s high tariffs and other barriers. Customs officials report the worst cases of underinvoicing on goods with high duties—for example, costume jewellery (often invoiced at just 5% of its real value). But tax evasion is made easy by lax and outdated customs controls. This fraud would be cheaper to fix than reforming the institutions that Bangladeshis commonly perceive to be the most corrupt: the police, the judiciary and political parties. Some efforts are already being made. This summer the government launched a new software system in three of its ports (Benapole, Chittagong and Dhaka), which allows customs officials to check dodgy-sounding values by looking up current market prices.

But full automation is still a long way off. And on June 30th Bangladesh’s mandatory "Preshipment Inspection Programme", under which the quality, quantity and price of exports were verified by an independent firm before entering Bangladesh, was dropped. The system had helped contain the worst excesses of fraudulent trade invoicing. Customs won the battle to scrap the scheme after the intervention of politicians, some of whom may benefit from the fraud. Losses to the exchequer are likely to keep rising.

Duty-dodging in Bangladesh

Muhammad Abdul Mazid

Published: Wednesday, September 11, 2013   link here

 THE Economist, in its September 3 electronic issue, had an interesting article on duty-dodging in Bangladesh, saying that counterfeit counterfoils were the vehicles for that. The article seems to say that duty dodging is a new discovery and it happens only in Bangladesh. It said: “Yet it is surprising how little attention donors pay to the biggest form of graft in Bangladesh, which, if fixed, would leave the government with enough cash to double health spending and to pay for an infrastructure project as large as the Padma Bridge every two years.” The intention of this article was exposed in the concluding paragraph, which said: “And on June 30, Bangladesh’s mandatory Preshipment Inspection Programme (PSI), under which the quality, quantity and price of exports were verified by an independent firm before entering Bangladesh, was dropped. Customs won the battle to scrap the scheme after the intervention of politicians, some of whom may benefit from the fraud. Losses to the exchequer are likely to keep rising.”

The article has identified fraudulent trade invoicing as a major cause of corruption, and the trade pundit quoted might be right in reckoning that if the practice of under-invoicing were stamped out, the country could comfortably increase its tax-to-GDP ratio. But it is very difficult to accept the preposition because if the economy ends up paying a lot for imports, how is the fraudulent practice squandering an estimated $3 billion a year in foreign exchange when aggregated annual import of Bangladesh is around $36 billion

PSI system is still needed to help contain the worst excesses of fraudulent trade invoicing. In Asia, the mandatory PSI system existed only in Bangladesh and Cambodia, with Pakistan discarding the arrangement in late nineties after a brief stint. Voluntary PSI system was introduced in Bangladesh in 1992, and it was made mandatory 8 years later, in a bid to help generate revenue by minimising widespread corruption in customs and ending hassle for importers in clearing goods quickly. NBR tried to take over the charge, depending on three factors (sufficient manpower, end to litigation and completion of automation) to complete capacity building. There were controversies surrounding appointment of PSI agencies, and even in ensuring transparency in the license awarding and block allocation process.

At times different business chambers spoke against going back to non-PSI era as the customs department could not offer the kind of service businesses require to stay in the race in a highly competitive market; customs officials became too dependent on the PSI system, lamenting that no valuation database could be built as yet and the skill and training that are required to stop corruption at this level were missing. There were sharp reactions at the reports of mind-blowing instances of corruption through abuse of the PSI system by increasing financial penalties for irregularities. In an attempt to discourage PSI companies from frequent litigation against customs penalties, the authorities also decided to withhold the service charges of related companies till disposal of cases.

It is a fact indeed that under- and over-invoicing is not really a type of invoicing fraud, more a type of tax fraud. In Bangladesh, there have been allegations of under-invoicing and over-invoicing against the importers since long. Due to higher tax regime in the past, the general tendency among the importers was to under-invoice, mainly in order to avoid taxes or high taxes. With tariff liberalisation or reforms, there is less under-invoicing than over-invoicing now.
Traders resort to duty dodging because they want to have some hard currency abroad to take care of children’s education, to buy assets outside, to obtain coverage against continuous depreciation of Bangladesh taka against hard currencies, and to take care of payments against imports, where they might have under-invoiced.

Traders in tax-free as well as highly taxed items under-invoice the highly taxed item import price. They settle that item exporter’s obligation through the money they remit in excess of the required money for the import of tax free item , simply through over-invoicing. There have been allegations against the traders or importers of over-invoicing the commodity prices, thereby not only contributing to price spiral in the local market and thereby inflation, but also more importantly laundering money outside in excess of the actual value of the commodities imported. Regulators often find it difficult to enforce the law to catch the importers. Under an import policy stipulation, the opening banks should verify the price before opening letters of credit.
Stringent monitoring by banks, customs, and relevant agencies should always be there. ‘End to end transaction’ analysis should be carried out while handling international prices for same commodities, and more importantly similar amounts and similar clients. In the era of technological solutions and information superhighway, the job could be easier. During 2007-2008, coordinated efforts were enforced to make valuation system in order. Customs Intelligence and Inspection Directorate of NBR in recent times have scaled up their roles, and the Customs Valuation Department is going to be more competent and compatible, which might be not enough at the moment but it remains tied to exogenous factors like international trade. Constant changes can result in under- or over-invoicing. There is none to deny the fact that under- and over-invoicing are an effective means of money laundering, and it is proving to be a complex nut to crack for the agencies charged with tracking down frauds and its proceeds.

The writer is a former secretary and a former chairman, National Board of Revenue.
E-mail: mazid1273@hotmail.com