Time to update customs valuation system

VOL 23 NO 72 REGD NO DA 1589 | Dhaka, Saturday, January 23 2016

http://old.thefinancialexpress-bd.com/2016/01/23/132022

Time to update customs valuation system M S Siddiqui Developing countries depend on import duties for a significant portion of the national budget. This is a weakness of the economies of these countries.

Economists opine that the recent Greek economic disaster is a result of weak revenue collection procedure. Bangladesh revenue collection from import was about 27 per cent in the last financial year ended July, 2014.

Customs duty valuation is heart of customs revenue collection. Custom valuation is a major concern of importers in Bangladesh and currently, a total of 24,572 cases are pending with the Supreme Court, which involve an amount of Tk 309.47 billion (30,947 crore) revenues in income tax, customs duty and VAT. Out of these, the customs duties with Tk 48.25 billion (4,825 crore) revenue in 17,470 cases top the list. The NBR (National Board of Revenue) data show that the pending revenue with court cases is 17.55 per cent of the total revenue target for the current fiscal year. Most of the cases are dispute of customs valuation.

Clause 25 of the Bangladesh Customs Act deals with the valuation of goods for assessment purposes as per agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, 1994. But it is alleged that customs department very often misuses these terms . A "customs value of imported goods" means the value of goods for the purposes of levying ad valorem duties of customs on imported goods. "Identical goods" means goods which are the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearance would not preclude goods otherwise conforming to the definition from being regarded as identical "similar goods." Which means goods, although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. The quality of goods, their reputation and the existence of a trademark are among the factors to be considered in determining whether goods are similar. Any goods shall not be regarded as "identical goods" or "similar goods" unless they were produced in the same country as the goods

being valued. The goods produced by a different person shall be taken into account only when there are no identical goods or similar goods, as the case may be, produced by the same person as the goods being valued.

There is an agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, 1994 (GATT). The primary basis for customs value under this Agreement is "transaction value" as defined in Article 1.

Articles 2 through 7 provide methods of determining the customs value whenever it cannot be determined under the provisions of Article 1.

Where the customs value cannot be determined under the provisions of Article 1, there should normally be a process of consultation between the customs administration and importer with a view to arriving at a basis of value under the provisions of Article 2 or 3.

On the other hand, the customs administration may have information about the customs value of identical or similar imported goods which is not readily available to the importer. A process of consultation between the two parties will enable information to be exchanged, subject to the requirements of commercial confidentiality, with a view to determining a proper basis of value for customs purposes.

Article 16 has more on consultation. Upon written request, the importer shall have the right to an explanation in writing from the customs administration of the country of importation as to how the customs value of the importer's goods was determined.

Articles 5 and 6 provide two bases for determining the customs value where it cannot be determined on the basis of the transaction value of the imported goods or of identical or similar imported goods. Under paragraph 1 of Article 5 the customs value is determined on the basis of the price at which the goods are sold in the condition as imported to an unrelated buyer in the country of importation. The importer also has the right to have goods which are further processed after importation valued under the provisions of Article 5 if the importer so requests. Under Article 6 the customs value is determined on the basis of the computed value. Both these methods present certain difficulties and because of this the importer is given the right, under the provisions of Article 4, to choose the order of application of the two methods.

Article 7 sets out how to determine the customs value in cases where it cannot be determined under the provisions of any of the preceding Articles.

Article 7 mentions that if the customs value of the imported goods cannot be determined under the provisions of Articles 1 through 6, inclusive, the

customs value will be determined using reasonable means consistent with the principles and general provisions of this Agreement and of Article VII of GATT, 1994 and on the basis of data available in the country of importation.

Article VII of the GATT lays down the general principles for the purpose of customs valuation. It states that the value of the goods for Customs purposes should be based on actual value of imported goods or of like goods and should not be based on the value of indigenous goods or on arbitrary or fictitious values. The actual value should be derived from a sale or offer for sale under fully competitive conditions. The principles have guided further developments to standardise customs valuation systems since then.

The Brussels Definition of Value (BDV), introduced by World Customs Organisation (WCO) in 1950, was based on the concept of "normal value" the price of goods in the open market between unrelated buyer and seller, under specified conditions of time and place. In practice as the bulk of imports take place under the conditions stated therefore as per BDV; the invoice price can be taken as basis for valuation. In case certain conditions are not met as in the case of related party transactions, or where declared price is apparently low, or in case of imports by agents, Customs can use some suitable basis to construe normal price using information available and taking in to account actual conditions of sale.

The Customs Valuation Code agreed upon at the Tokyo round was given a formal shape at Uruguay round of trade negotiations and came to know as ACV with some minor changes. The most important change was regarding Shifting the Burden of Proof (SBP) at the behest of developing countries also known as Decision on Shifting the Burden of Proof (SBP). SBP implies that in case where Customs have a reasonable doubt about the values declared by the importer, the burden of proof that the values declared are true is with the importer. If after the submissions of the importer, Customs on the basis of price information and other available data still have doubts about the declared values, the transaction value can be rejected and Customs can proceed sequentially to determine the value. All developed countries acceded to the ACV and the Uruguay round made its application mandatory for all the members of World Trade Organisation (WTO).

There is no formal consultation with importers on customs valuation procedures in Bangladesh. It is therefore imperative that a formal partnership is forged between Customs authorities and importers/traders.

These steps should include developing a database containing price information of imported goods, putting in place a risk management system and continuously updating it, providing training to the officials.

Customs valuation should be fair, uniform and transparent so that it does not become a non-tariff barrier to international trade. It is interesting to note that NBR is against any multilateral or bilateral trade agreements since it needs to overhaul the valuation rule and practice to comply with such trade agreements. Customs valuation has been subject of multilateral trade negotiations as present practice of NBR can constitute a non-tariff barrier to international trade.

WCO has issued guidelines as to how to use the database as a risk management tool. A database with the Customs that is continuously updated serves as a deterrent to importer to undervalue.

A customs valuation system that is arbitrary and opaque can be harmful in many ways.

An ill-conceived customs valuation system encourages corrupt practices that are detrimental to development of the rule of law in the long run. It also undermines investments, both foreign and domestic. Furthermore, even the customs officials may misuse an arbitrary and opaque customs valuation system. Acceptance of transaction value by importing countries for the purpose of customs valuation is the basis of Agreement on Customs Valuation (ACV) part of the WTO agreement.

Lack of transparency and discretionary powers to arbitrarily fix customs value have increased scopes for corrupt practices. Apart from revenue considerations a transparent and uniform customs valuation system ensures a level playing field for all stakeholders. For example, if an importer underinvoices the goods not only does the Government loses revenue, but it also provides him with an unfair advantage over his competitor. Further it can delay the clearance of goods, disrupt the supply chains and thereby impede the flow of international trade, ultimately hurting economic growth.

The introduction of ASYCUDA ++ may be a solution to problem of assessment of value in Bangladesh. But till date the system has been installed but reportedly partially operationalise; but there is no significant improvement of valuation till date.

The arbitrary power of customs official should be withdrawn as per existing Custom Law. The burden of value should be shifted on importers and mutual consultation should be introduced.

The writer is a Legal Economist. shah@banglachemical.com