Post clearance customs audit

National Board of Revenue (NBR) confronts significant challenges in balancing their responsibilities for collecting revenue and facilitating trade. It is a common issue for all countries in developing world. NBR find the job easier to perform their responsibility regarding imposing customs duty at border than collection of income tax and value added tax. The customs duty is an advance tax and impose pressure of working capital of the enterprises.

The advice tax collection has many challenges. The dispute over HS Code and price for determination of customs duty is a complicated dispute at the port is very often and causes delay in clearing the consignments incur demurrages. Most of the time, it becomes unfeasible, therefore, for Customs to make conclusive decisions regarding duty liability in the narrow time frame available. These processes increase the cost of products. It is not appropriate to delay clearance of goods whilst resolving such enquiries, unless fraud is suspected.

In order to reduce the irregularities, delay and corruption, a policy paper on Post-Clearance Audit (PCA), recently adopted by the National Board of Revenue (NBR) in June 2021. NBR will issue Statutory Regulatory Order (SRO) at any time as a major reform in customs procedure for easy release of consignment in a transparent manner.

Many nations nowadays concentrate their controls on the post-importation/ exportation environment and targeted checks at the port with the introduction of post-clearance approach, known as Post-clearance audit (PCA). PCA process can be defined as the structured examination of a business' relevant commercial systems, sales contracts, financial and non-financial records, physical stock and other assets as a means to measure and improve compliance at the office / factory premises of the importers. It may do the audit any time after import. It means audit-based Customs control performed subsequent to the release of the cargo from Customs’ custody. The purpose of such audits is to verify the accuracy and authenticity of declarations and covers the control of traders’ commercial data, business systems, records and books. Such an audit take place at the premises of the trader /manufacturers, and may take into account individual transactions, so-called ‘transaction-based’ audit, or cover imports and/or exports undertaken over a certain period of time, so-called ‘company based’ audit. (UNCTAD, 2011).

The main objective of PCA is to facilitate trade while ensuring compliance with national legislation with regard to the import and export of goods. With the paradigm shift from physical control-centric Customs to facilitation-centric Customs across the globe, PCA has assumed growing importance.

Bangladesh has a kind of existing PCA. In each custom house there is a separate PCA branch/unit that regularly conducts transaction-based PCA. The main office that centrally carries out PCA in all customs offices across the country is the Customs Valuation and Internal Audit Commissionerate (CVIAC). This office was set up in 2002. After releasing goods, the PCA unit of the customs houses conducts PCAs based on risk management. The authority holds the consignments at the port after all formalities of release the consignment and conducts the audit instead of PCA at the premises of the importers. Usually, customs officials scrutinise all documents of selected import consignments, based on risk factors such as nature of import, track record of importers, clearing agents, and duty structure under the PCA system after releasing the goods from the port but before delivery to the importers.

Only a few customs offices, such as the Chattogogram and Dhaka customs houses, use ASYCUDA World software for risk management and PCAs. In most of the land customs stations, consignments are selected for PCA manually. This manual selection leaves scope for both arbitrary and subjective selection of consignments. The business community has reservation about selection process of consignments for PCA. Bangladesh still lacks an effective PCA regime. NBR is unable to audit the records systems and stocks after import and monitor the appropriate use of the raw materials or sales in order to oversee the payment of Income tax and Value added tax in due courses.

NBR has complaints that importers usually manipulate the price, change HS Code, mis-declare the products. There is a serious complain of mis-use of bond license issued to exporters. The existing customs valuation and random audit failed to control those irregulates. The PCA system at importer’s premises can resolve the problem at together. The overall objectives of PCA are to assure that Customs declarations have been completed in compliance with Customs legal requirements as well as other requirements under any other law applicable in respect of import or export, via examination of a traders’ systems, accounting and other business records and premises. .

The OECD study (2014) showed that implementation of TFA would result in a cost reduction of 14.1 per cent for low-income countries, 15.1 per cent for lower–middle-income countries, and 12.9 per cent for upper–middle-income countries. Additionally, it will boost global trade by up to $1 trillion per year. Seizing the opportunity of globalisation, developing countries have connected themselves to the global supply chain that has increased the volume of cross-border cargos exponentially over the years. Therefore, to address the surge of cargo movements, the WTO introduced several measures, one of the important measures being PCA.

The audit will facilitate the compliance of regular reporting of VAT and collection of Income tax as importers will have to maintain records of imports, sales and consumption of raw materials in production process. Unfortunately, the insiders in NBR fear of a commensurate decrease in border controls with increased PCA activities and its effects on revenue collection in Bangladesh. The experience of the other countries doesn’t support the fear of NBR officials. This conception of officials is a challenge of introduction of PCA in Bangladesh.

With the ratification of the TFA in 2016, Bangladesh has obligation to introduce PCA in the customs rule. The relevant SRO should be issues as early as possible.

The writer is a legal economist. He can be contacted at [email protected]