Business gets costlier as Customs overvalue imports

Kitty Industries limited, a local electric switch-maker, had imported raw materials at a cost of $1,460 per tonne. 

But the amount of duty it was charged left a bitter taste in their mouth.

"We imported raw materials at $1,460 per tonne, but the customs department officials wanted to tax it at a rate of $2,100," Mohammad Zakir, an adviser to the company, told The Business Standard. 

The company was left with few options. If they tried to contest the cost, the port demurrage charges would pile up as the goods would lie undelivered, accumulating charges.

"It's not only us. Almost everyone is in such a situation. As the opening of Letters of Credit [LCs] are down, the National Board of Revenue's [NBR] earnings are also down. Now they need more revenue, so they are putting pressure on us," Zakir said.

He said this meant product price was increasing, which in turn was hurting consumers' wallets.

In the face of lowered earnings amid an LC crunch, customs officials are allegedly putting a squeeze on importers, overvaluing their goods and increasing the cost of doing business.

Consequently, the additional expenses are passed on to the consumers amid high inflationary pressure, according to businesses.

This is particularly damaging to the business competitiveness of the country's exporters, who heavily rely on imported goods to produce export products.

Traders say despite the prices of imports falling after a turbulent global market situation, customs officials still refuse to accept lower valuations.

Examples of such arbitrary practices abound.

In support of such claims, TBS obtained nine bills of entry – a legal document filed by importers or customs clearance agents on or before the arrival of imported goods – for various raw materials from a leading business organisation.

Analysis of those showed that the Chittagong Customs House had assessed an additional 2%-83% over the invoice values, increasing the duty on the imports.

On condition of anonymity, a top level official of the business organisation, told TBS, "Because of this, we have to pay several crores as duty. This has increased our production cost and it is hurting business."

Importers also expressed fears that the VAT office would collect additional value-added tax (VAT) on the goods due to the high import price.

Three more importers told TBS they were charged higher prices than the actual import price.

Last Wednesday, during the pre-budget discussion with the NBR, two leading business organisations of the country – the Metropolitan Chamber of Commerce and Industry (MCCI) and the Foreign Investors Chamber of Commerce and Industry (FICCI) – raised this issue.

Officials at the NBR, however, say the claims are unfounded.

Masud Sadiq, an NBR member who heads the revenue board's Customs Policy department, pointed out the business practice of under-invoicing. At the meeting of the NBR, he said, "Many times [importers] do not report the correct value, which is why we set the value."

A former member of the NBR, Md Farid Uddin, also said there were complaints of under-invoicing.

"Not everyone shows a fair price," he said, adding that sometimes the importer, bank or clearing and forwarding agent does not provide all the documentation or information required.

According to NBR sources, the customs department currently determines the product value based on the value of import data stored in a software called ASYCUDA World.

The price of the same product is determined based on the average price charged for the product in the previous three months.

In this regard, Md Saiful Islam, president of the MCCI, said, "In the present reality, most of the time the database price or record price is considered as the tariff price, completely ignoring the invoice value of the product."

He said, "Prices fluctuated regularly due to Covid-19 and the Russia-Ukraine war. Due to this, the historical value will not match the present value."

Demurrage rising, competitiveness falling

As importers disagree with customs valuation – which they considered excessive – goods are being stuck in ports and the demurrage cost is making businesses expensive.

Md Farid Uddin, the former NBR member, told TBS, "An importer recently had to pay Tk70 lakh at the Chittagong Port Authority as demurrage. Shortly before that, another trader had to pay Tk60 lakh."

He said, "You cannot collect much revenue through this kind of assessment. But as a result, the industry has to count increased costs and it suffers in turn."

He said to make the business environment competitive, fair, friendly and free of harassment, the duty has to be calculated according to the transaction value.

"What is happening in Bangladesh is against international standards and the World Trade Organization's policy," he said.

Impacts can be significant and far reaching

Businesspeople from top performing sectors like garments, textile, packaging etc. talked with TBS explaining how overvaluation is having a range of impacts. All of them sought anonymity.

The most often expressed concern of the businesses was rising business costs because of overvaluation of imported goods leading to higher customs duties and taxes.

This will force businesses to increase prices which would be passed on to consumers, they said.

At the same time, the hikes may make it harder for companies to compete in the global marketplace, leading to a decline in the country's overall competitiveness, they expressed their concerns.

They also feared that the overvaluation has the potential to create trade barriers and hinder the flow of goods and services across the border, resulting in strained trade relations.

A considerable impact will also be felt with the economy slowing down as businesses cut back on investments and hirings while consumers reduce spending, they commented.

Solutions in sight

There are, however, ways to solve the current crisis.

Automation, a valuation module, integration, supply chain monitoring and risk management can all help solve the problem.

Farid Uddin, the former NBR member said, "Developed countries follow the valuation module, so the importance of risk management is emphasised. Under this arrangement, the importers' past records should be used to create a profile for risk analysis and then it should be stored in the ASYCUDA database."

Md Saiful Islam said, "It is possible to know the actual import price by implementing the automation system through the database and updated information of the international market."

Masud Sadiq of NBR also said they were in the process of subscribing to sites such as Alibaba and Reuters, which regularly update price lists of various goods.

About 8,000 bills of entry are submitted daily to six customs houses in the country, of which Chittagong Customs House processes around 6,000.

Highlighting his experience, Farid Uddin said, "There is a less than 10% risk of mis-declarations for import consignments. The NBR should then have a risk analysis of which importers do this and which don't. The price of imports, sales, etc can be looked up in the updated price list in the world market."