ISLAMABAD (March 17 2003) : The International Monetary Fund (IMF) has asked the Central Board of Revenue (CBR) to incorporate comprehensive procedural changes in the custom clearance pilot project for the benefit of importers/exporters at Karachi otherwise it would not be possible to undertake the current project by July 1, 2003.
The CBR is persistently claiming that the pilot project for speedy clearance of shipments would be enforced at Karachi Port from next fiscal year.
IMF's Fiscal Affairs Division (FAD) representatives James T. Walsh and Anthony C. Sawyer, who recently visited Pakistan to review and discuss 'custom administration reform plan', expressed some reservations over the strategy chalked out by the Central Board of Revenue (CBR) and consultants Maxwell Stamps.
The mission was of the view that the project plan in hand needed changes for successful development and implementation of the reforms. The mission observed that “custom administration is burdened by outdated legislation, slow and complex procedures, over-staffing and lack of trained staff, which ultimately increase compliance cost for traders”.
Curtailing the role of custom appraisers in processing imported consignments vis-a-vis control of import/export and transhipment cargo for revenue/anti-smuggling, IMF has urged further transparency in import entry processing procedure to simplify the process and reduce burden on business.
The mission's fiscal experts turned down the idea of CBR's consultants to withdraw approvals of Dry Ports in Pakistan, saying that the mission supports continuation of Dry Ports provided controls be improved to ensure speedy clearance of consignments.
They also pointed out that investment in installation of scanners for screening of imported cargo falls much lower in the list of priorities as compared to automation or establishment of a post-verification unit.
IMF has recommended to the CBR to restrict clearing agents to the service counter area and not permit them to meet face-to-face with the custom appraisers and other staff.
At present, the agents controls all the clearance process, read comments endorsed by custom officials and have close contact with the officials involved in clearance process.
Secondly, the CBR should provide service to the importers round the clock at Karachi Port replacing current processing of import entries on one shift basis. The CBR should ensure that all entries are paid before physical inspection ie payment before documentary review and physical inspection for all entries.
The importers having history of false invoicing, under-valuation and mis-declaration of goods should be identified as 'high risk' for verification. Goods with higher rate of custom duty are likely to be undervalued as compared to duty-free/low-duty goods, which do not need to be verified for valuation.
The CBR should set time limit for processing import and export entries.
IMF recommended to the CBR to set up a post-release verification and audit in Karachi having 20 senior appraisers to focus on valuation, origin, classification, exemption and suspension of claims for selected transactions.
The authorities have to adopt a low-tolerance approach and firm attitude towards tackling blatant under-valuation.
The IMF objected to Maxwell Stamps reform strategy, which was designed to introduce electronic transmission of entries; selectivity including, automatic selection of imports that are free to leave (green channel), entries requiring documentary check (yellow channel) and shipment requiring physical verification (red channel); computer assignment of appraising, examining officers and post-release verification and audit.
The current computer system does not support the above-mentioned features including selection for green, yellow and red channels, envisaged in the reform. It requires significant investment to support the information technology requirements, IMF said.
Pre-screening of manifest information using risk analysis is an important feature of the system. However, the mission questioned the need for this sophisticated tool for the initial project as most of the custom administrations use selectivity system at the time of entry processing.
The post-release verification and audit is not well understood and high level procedures have not yet been developed for this activity.
The mission further said that the financing of the pilot project has yet to be finalised and there has been no formal endorsement of the custom administration reforms plan.
The agreement on business requirements has not yet been finalised and, as a result, decisions regarding information technology support cannot be made. While various software packages are being considered, it is very difficult to judge their suitability until the business requirements are agreed to, the mission said.
IMF pointed out that “July 1, 2003 is being considered as the target implementation date for the pilot. The above noted issues need to be addressed before realistic planning for the pilots' successful implementation”.
The mission further conveyed to the CBR that it is much more important to plan carefully than to rush into an implementation, which may not be successful.
One of the first and most important tasks of the project team should be to determine the pilot project implementation date.
The pilot should be designed to test the most important principles and not necessarily all of the features that will be included in the final system (eg, pre-screening of manifest information). Alternatively, features can be added to the pilot a few months after initial implementation.
The CBR should prepare an overall development and implementation plan for the customs administration reform project.
The plan, laid down in Maxwell Stamp report, should be used as the basis for document.
For pilot project, the CBR should prepare a detailed implementation plan including a realistic implementation date. The plan should include preparation of performance measurement criteria and monitoring mechanisms.
The IMF specified that officials must be computer-literate not only in the mechanics of how to process a transaction through its various steps but more importantly by being able to interpret information and to use it.
For example, a system that selects consignments for documentation control (yellow channel) can be rendered ineffective if customs officials misuse their discretion by diverting all yellow channel consignments to the red channel for physical inspection without reasonable justification.
Good systems alone are not enough but must be reinforced through well-trained staff and good management practices.
IMF observed that old 'archived; entry bundles are dumped in random piles near the roof of the premises at Karachi Port in such a way that it would be extremely difficult to recover any particular bundle.
The well-maintained archives are important for effective post-release verification and audit work as well as for potential investigation.
Commenting on the role of intelligence and investigation office, the mission observed that the role of this unit within the CBR is not entirely clear.
While the unit is nominally charged with covering customs, excise and sales tax, in practice it does not address sales tax related fraud.
To address the issue, the CBR should review the role of the intelligence and investigation directorate and upgrade intelligence function in terms of recruitment and training of specialised staff.
IMF has also asked the CBR officials to combine Member Exports and Member Customs posts into a single customs member post.
The CBR should also engage trade community to suggest measures for modernisation process.