A reputed tyre importer whose trade has been severely affected by a large-scale fraudulent tyre imports says that all his representations made to the Director General Customs has been completely overlooked, even without a acknowledgement notice served on the complaint made.
Further to the representations made to us by the said importer, we have launched our own investigations into this affair and now we can reveal that it is a plausible and real complaint, which leads to disclosure of massive scale revenue loss incurred by the government.
Customs adopt completely outlawed Customs Valuation System
It is revealed that despite a landmark judgment (CA/392/2012) recently pronounced by the Court of Appeal (October 2014), wherein it was declared that the valuation procedure adopted for customs purposes for the determination of value for imported goods is completely outlawed, arbitrary and in violation of the law governing the valuation of goods for Customs purposes, the Department of Customs has absolutely disregarded this court ruling and has failed to put in place a fool proof vibrant valuation process to determine the valuation of goods for customs purposes, in accordance with the GATT Valuation Agreement (Article VII).
Customs Valuation Directorate: the best money making chance
Our investigations reveals that the Valuation Directorate of the Customs Department is the best money making machine for the officers posted there and there is a big competition amongst the Customs Officers to get a placement there. We can disclose that the competition to get a placement there is such that the annual transfer list reaches the Minister of Finance for the final approval.
Customs Officers maintain their own valuation records for improper purposes
The credible information collected from the Customs House Agents on this exploitation reveals that officers serving in the Valuation Directorate maintain their own ‘private valuation data records’ for improper purpose of demanding inducements from the importers. In most cases these ‘private valuation data records’ represent true transaction value declared for the Customs purposes by the genuine importers, which is naturally much higher than the values declared for similar goods imported by fraudulent elements.
Totally outlawed Valuation process
It reveals that most of the importers usually tend to clear their shipments, evading the payment of the actual tax on their shipments on the true transaction value. Therefore they naturally agree to share the profit make out of understatement of value with the officers, who would then approve the undervalued invoices presented for the Customs purposes.
As reported in the case challenged in the Court of Appeal (CA/392/2012), a case where such arbitrary valuations determined by the officers for improper purposes was challenged by a importer refused to pay any inducement, the outlawed practice adopted by the officers is such that enhancement of the value for Customs purposes goes up from 5% to 100% or more. The final determination of this outlawed process is solely depends on the amount of inducement the importer agree to pay to the officer who arbitrarily determine the final value.
It is unthinkable that this outlawed practice is being continued unhindered, causing tremendous loss of revenue to the government, whilst some businesses refuse to given in to this unethical and unlawful practice are forced to close down, because they cannot compete with those import goods at a much lower value and sell them at a much lower price to the end user.
The letter below is a copy of the letter sent by the importer to the Customs authorities on 17th March 2015.
17th March 2015
Designated Senior Officer
Department of Customs
MASSIVE REVENUE LOSSES TO THE GOVERNMENT ON THE IMPORT OF TYRES DUE TO MALPRACTICES AND IRREGULARITIES AT THE DEPARTMENT OF CUSTOMS – REQUEST FOR A POST CLEARENCE AUDIT
Further to my meeting with you, and Mr.Xin the presence of the juniors of my lawyer Mr.Y on 20th February 2015, wherein I mentioned that I am in possession of copies of very important customs clearance documents which manifestly prove that our Government is incurring massive losses in revenue in the import of automobile tyres due to malpractices and irregularities at the department of customs, the following short narrative and attached documents validates clearly my claim.
My firm, A has been in the very competitive business of importing automobile tyres from manufacturers and /or suppliers and selling them in the retail and wholesale market for the last 30 years. These imports were mainly for cars and vans and in some instances for buses.
As you may well be aware, the primary HS coding for “New Pneumatic Tyres of Rubber” is 40.11, and the sub-classification for tyres, “of a kind used on motor cars (including station wagons and racing cars)” is 4011.10, and “of a kind used on motor buses or lorries” carries the code 4011.20.Thus, the tyres my firm imported and sold fell into either of these above named two sub-classified HS codes.
Some unscrupulous importers were engaged in the practice of submitting undervalued shipment invoices, to evade payment of the correct (higher) duty and related higher taxes and levies such as VAT, PAL etc. This resulted in significant revenue loss to the Government. With a view to stem such revenue losses, the Government under the provisions of the Revenue Protection Act No.19 of 1962,issued a ‘Revenue Protection Order No.02/2007’ by way of a Customs Notification via Gazette – Extraordinary (No:1497/5 of 14th May 2007).Under this revenue protection order, tyres classified under HS codes 4011.10 and 4011.20, customs duty and surcharge was payable either at 28% of the aggregate of the invoiced value plus insurance and freight, or at Rs.80/= per kilo on the total weight of tyres on the consignment whichever was higher(refer Annexure I).
As you may be well aware, the duty imposed on the basis of tyre weight is known as the, “duty on weight” system. In the imposition of duties, the customs first calculated customs duty on the ‘invoice price’ and thereafter calculated the duty on the above mentioned “duty on weight” formula. If it was found that the duty on the “invoice price” was less than the “duty on weight” formula, then the customs determined the invoice to be an undervalued invoice, and imposed duty on the “duty on weight” formula.
On the other hand if the duty computed on the invoiced value was higher than that under the duty on weight formula, the said invoice was determined to be not undervalued.
As my firm was paying its duty and other taxes and levies based on genuine invoice value, It was observed, that whichever basis (duty on invoice price or duty on weight) the tyres were valued and custom duty and other levies and taxes (EIC, PAL, VAT, NBT, and SRL) were believed to be calculated, the aggregate difference was negligible.ThereforeI believed that under the “duty on weight” formula no competitor could obtain an illegal and undue advantage through ‘under invoicing’.
However, the presence of competitor tyres in the market,at prices less than the aggregate cost of importing and paying duty and other taxes and levies (EIC, PAL, VAT, NBT, and SRL) even long after the introduction of the “duty on weight” scheme was very puzzling.In fact my company subsequently made inquiries from the Department of Valuations of the customs and was informed that the above mentioned system of calculating and imposing of duty and other taxes and levies (EIC, PAL, VAT, NBT, and SRL)were being implemented on all imports of tyres and that no importer could have an illegal and undue advantage by under-invoicing.
In August 2010 my company was able to gain access to an invoice of one of our competitors who was being supplied vehicle tyres by our own OEM supplier, namely Company B.On examination of this invoiceI found that products of exact specifications were underpriced compared to that of our invoice.Our company therefore made representations in this regard to the Valuation department at the Customs and followed this up with a registered post letter dated 19th August 2010 addressed to the relevant senior officer at the Customs (Valuation) department with copy to Director General Customs for which my company did not receive any response (Annexure II).
As there was no response from the customs authorities to our company representations, and the fact that tyres at prices less than the aggregate cost of importing and paying duty and other taxes and levies (EIC, PAL, VAT, NBT, and SRL) were still entering the market, discrete inquiries were made which appeared to confirm our company’s suspicion that there were some manipulations at the point of import and that it could be with the connivance of personnel at the customs.
However, our continuous vigilance paid off when we gained access to two cusdec documentations of our competitors – Annexe III and Annexe IV which clearly demonstrates, that though the customs are employing the ‘duty on weight” formula in the calculation of duty on under invoiced consignments of tyres, for the calculation of other levies and taxes (EIC, PAL, VAT, NBT, and SRL )they are using the under invoiced value instead of using the ‘estimated invoice value’ based on the ‘duty on weight’ formula which grossly understates the taxes and levies payable to the State on the import of tyres.I have highlighted some of these products in similar colours for ease of reference.
For example, item 165R13C 94/92N N820L on the invoice of our competitor is priced at USD 9.54 per unit – Annexure III, whereas the same is priced at USD 29.2118 per unit on the invoice to this informant’s company – Annexure V.
Similarly item 185R14C 102/100R N820 L in Annexe III is priced at USD 8.80 per unit, whereas on Annexure V(our invoice) it is priced at USD35.2611 per unit. Even though the two respective invoices (Annexure III & Annexure V) have been raised in January 2009 and Oct 2009, you would undoubtedly agree that the lapse of around 10 months cannot bring about such a phenomenal change in invoiced prices.
These documents provided the answer to our question as to why there were tyres in the market at prices less than the expected aggregate cost of import and payment of duty and other taxes and levies. Annexure III (a) and IV (a) show in detail the actual computations for taxes and other levies(EIC,PAL,SUR,VAT,NBT,SRL) carried out by the customs and what ought to have been the correct computations. For example in the case of the two cusdec documentations –Annexure IV (a) & Annexure III(a), the loss of revenue to the State is a massive Rs.676,889.14 and Rs.801,556.39 respectively.We are aware that approximately 1,000 consignments are imported annually in to the country, and based on our extensive experience in the trade we believe that over 90% of such imports are grossly undervalued, thus depriving the State of invaluable revenue by way of levies and other taxes.
Therefore, as a civic minded citizen and responsible corporate leader, I kindly request you to initiate a post audit of the customs declarations on tyre imports with the immediate objective of halting this malpractice at the customs, and also to enable the State to recover evaded levies and taxes from those responsible. This request is being made in the interest of the public at large and I intend pursuing this matter through other channels if necessary in the national interest.
- His Excellency the President of the Democratic Socialist Republic of Sri Lanka
- Tilak Ranaviraj – Secretary National Executive Council
- Director General of Customs – Sri Lanka Customs
- The Auditor General -Auditor General’s Department
*Note by the importer – Though the content in this copy of the letter is exactly the same as on the original, as a precaution, in this copy I have refrained from mentioning some names and designations of any individuals (including that of mine), and other competitor companies .In fact I have substituted these names with letters from the alphabet. For my part, I have signed off on the attached copy of the said letter as, “The Informant”
Amarasiri / April 18, 2015
Dear reputed tyre importer
“A reputed tyre importer whose trade has been severely affected by a large-scale fraudulent tyre imports says that all his representations made to the Director General Customs has been completely overlooked, even without a acknowledgement notice served on the complaint made.”
Why not give the contract to the remnants of Black Tigers or the Underworld..
You will get better results.
Snowden Edward Asange / April 18, 2015
CUSTOMS DEPARTMENT is one of the MOST corrupt govt entities…sadly not much is done by ANY govt … its a case of ” The Dog barks while the caravan moves on…” So many businesses have put up shutters coz they refuse to pay the officers…. Most officers in the customs dept have MANSIONS built and fat bank balances… their kids are being educated overseas…how is this possible? oh yeah tell me they get a commission of ‘Shipments that are detained” and the importer is made to pay thumping amounts as penalty… all BS…
Moreover..they just catch the sprats..the small time importers and make them stop importing, while the sharks who palm the customs officers… swim in gay abandon… most times along with the officers…
chedi / April 18, 2015
THE CORRUPTION AND BRIBE TAKING BY ALL LEVELS OF EMPLOYEES IN THE CUSTOMS DEPT IS HORRENDOUS. ASK ANY CLEARING AGENT AND THEY WILL GIVE YOU ALL THE SORDID DETAILS.
YOU CANNOT GET PAST ANY EMPLOYEE WITHOUT DROPPING CASH INTO AN OPEN DRAWER.
HOW IS IT THAT NO GOVT WANTS TO DIG INTO THIS?
IF THE BAGS AND VEHICLES OF CUSTOMS DEPT EMPLOYEES ARE CHECKED AT THE EXIT THE GOODIES WILL SIMPLY FLOW OUT.
IMPORTERS ARE FRIGHTENED INTO PAYING UP WITH THIS MODUS OPERANDI:
THE IMPORTER IS INFORMED THAT THE WRONG HS CLASSIFICATION HAS BEEN ENTERED AND THAT ON THE CUSTOMS OFFICER’S INTERPRETATION OF THE CORRECT HS CODE THE DUTY WILL BE MUCH HIGHER. SO THE IMPORTER IS SHOWN HOW MUCH MORE MUST BE PAID (SAY 100k)AND ALSO TOLD IF THE CUSTOM’S OFFICER IS PAID HALF THIS AMOUNT (50k), THEN THE SHIPMT CAN BE CLEARED. IF THE IMPORTER DOES NOT AGREE THE ENTRY GOES INTO D BRANCH AND RISKS ANYWAY RECEIVING AN UNFAIR RULING. IMPORTERS WHO DONT PAY UP ARE MARKED AND HARRASSED AT EVERY OPPORTUNITY. WHAT DO THESE CUSTOMS OFFICERS TEACH THEIR CHILDREN? HOW DO THEY EXPLAIN THEIR ILL-GOTTEN WEALTH TO THE FAMILY? THE GOVT KNOWS THAT ONE STRIKE CAN CRIPPLE THE ECONOMY OF THE COUNTRY. THAT IS THE SWORD OF DAMOCLES THAT HANGS OVER ANY GOVT’S HEAD.
Das / April 18, 2015
Fish rots from the head
gamini / April 18, 2015
What a disgusting society we live in. Is there nothing else other than Corruption and Crime in every nook and corner? All these buggers are highly Religious people who parade as Paragons of virtue, but are corrupt to the core. Do you believe their children will take up to anything else other than Corruption and Crime? Honestly it makes me sick to see the Mockery and Hypocrisy people practice at all levels. I have begun to distance myself from these individuals may be friends, relations or even family members.
RICHARD / April 18, 2015
inside customs is like another world controlled by a customs mafia. Customs officials from the lowly peon to the DGC act as if they are god and the country’s laws allow them to continue in this fashion. Importers and clearing agents fear to cross them for repercussions. As an importer I know one cannot do imports without bribing these bastards. Even if your cargo is in order they will delay its clearing if you refuse to pay them, which will result in the importer incurring ‘port demurrage’. So the importer has to either pay the customs and clear the cargo promptly or pay port demurrage in delayed clearing. There is no appointed authority who could override a customs incorrect/irregular action reversing any unnecessary expenses incurred by the Importers and Exporters as a result. Customs officers know the helplessness of the importer/exporter and thus exploits the situation to their advantage. All bribes are shared by the entire ‘unit’ so no one squeels. If one is to seek action against a customs order one has to elevate it to the customs chief itself and from this article you know if one can expect a right decision from this man. If customs corruptions (including those committed with the importer/exporter)is to stop the govt must appoint the office of ombudsman with powers to investigate and overule a customs order as well as direct action against the errant officer/s.
Jim softy / April 18, 2015
Customs frauds are very old. Why govt can not solve that?
IT is an open secret that talk in the radio, customs officials take hugh bribes because their assets are humongous in relation to their salaries.
shankar / April 19, 2015
Customs should be cleaned up from top to bottom.It is a national disgrace and the head of it Wijeweera must be first dealt with just like rohana wijeweera was before he wrecked the country.Nobody with the name prabaharan or wijeweera should be allowed to have any responsible positions in the future.
This poor tyre importer should write directly to the president giving all the copies that has been sent to Wijeweera.If still nothing is done he should make a complaint against wijeweera to the bribery commission.
Pygmalion / April 19, 2015
Fraud,Bribery and Corruption is customary at the Customs.
It will be a lot easier to walk to the Moon rather than clearing the rot at the Customs!
There were Govt:Institutions where corruption was institunalised: Customs took the Lead. But,now the Inland Revenue Dept: with the VAT scam has beaten Customs.
The only wayout is CAPITAL PUNISHMENT!
Ranil Wijeyesekera / April 19, 2015
We are negitiating Free trade Agreements with countries and Blocks.Tariff Protectio9n is necesary. We and other countries offer consewsionary power, Income tax exemptions and other insentives to some industries and Boi projects..The list of free tariffs and reduction of tarriffs should be negotiated carefully. Previously container loads of baned goods and high tarrif items are smuggled in because of corruption. We need a Presidential tarriff commision funded from abroad but independent to make the best possible deal. Money and manpower should be available taking into account stagic advantages we have for our products. Embassys should provide informatin regarding imports of target product to target countries or groups. EEU and USA are our impotant markets.FDI will flo0w to meet market demand when we optimise tarriffs.
Ranil Wickremesinghe as Minister of Industry supported the Tarriff review Commision undertaken with German aid.
pujitha / April 19, 2015
This is good move. Remove all tariff protections on all goods and make everything free of any duty.
That will make Customs men to find jobs elsewhere. Because they cannot live without the blood smell.