Customs bond automation: Why hasn’t it taken off after all these years?

Highlights:

• Only 70 of 4,000 exporters have adopted bond automation system
• Full automation delayed due to unprepared stakeholders and software limitations
• Manual approvals continue despite automation deadline passing
• Corruption and resistance from officials, businesses hinder automation progress
• Full automation could curb misuse, boost transparency, and ease export processes

After eight years since the initiation of customs bond automation, aimed at benefiting exporters by enhancing efficiency and transparency in bond-related processing, only 70 out of 4,000 institutions have been fully automated by obtaining utility permission for imported raw materials from the customs office.

The Customs Bond Automation project was initially set to end in 2021 but was extended twice until December 2024.

However, when full automation was expected to commence in January, neither customs authorities nor importers, exporters, and businesses were prepared to use it.

The deadline was further extended to February, yet by mid-March, only a fraction of the active bond licence-holding exporters had obtained online utility permission.

As a result, harassment, irregularities, and illegal transactions in bond-related activities persist, according to stakeholders.

The customs bond facility allows exporters to import raw materials duty-free on the condition of export. These materials must be stored in bonded warehouses, and all products made from them must be exported.

Previously, after extending the deadline to February, the National Board of Revenue (NBR) had announced that, from March onwards, no Utility Permission (import entitlement approval for raw materials or UP) would be approved manually.

However, apart from the 70 institutions using the online system, the rest continue receiving UP manually.

Even at two NBR meetings on 13 March and 18 March, no decision was reached to fully implement the automation.

A senior NBR official, requesting anonymity, told The Business Standard, "UP will be manually approved this month as well."

"However, we are not sure whether the automated system will be fully implemented by this fiscal year, as there are some issues yet to be resolved," the official added.

Whether all exporters can transition to the online system next month remains uncertain due to sector-specific challenges that need resolution.

 What's behind the delay

Exporters primarily from the accessories, garments, and leather sectors rely on bond facilities. The bond automation software was developed with the ready-made garments and accessories industries in mind, leading to complications for the leather sector.

Additionally, two garment industry associations are independently approving utility declarations online via the NBR.

According to information from the NBR and business representatives, the slow progress in automation is due to deficiencies in the software and reluctance from some customs bond officials fearing a loss of extra income.

Resistance also comes from certain bond licence-holding businesses hesitant to adapt.

Allegations suggest that commercial officers working with customs on behalf of businesses are also reluctant to implement automation.

Md Shahriar, president of the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association, one of the largest stakeholders in the bond automation project, told TBS, "The main problem is the NBR's software. Even if 10 files are submitted for UP online, the system cannot process them."

He also alleged that a section of customs officers and unscrupulous businesspeople are obstructing implementation.

"Revenue Officers (RO), Assistant Revenue Officers (ARO), and certain businessmen do not want this system. Their 'business' will suffer," he said.

A senior official from the Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh, present at the 13 March meeting, highlighted software-related challenges.

"The software applies unit measurements in kilograms, suitable for garments and accessories, but leather industry raw materials require different units, causing complications. There are also issues with inputting HS codes," the official said.

A section of commercial officers who liaise with customs on behalf of factories has also raised concerns.

Md Jahirul Islam, president of the Dhaka Uttar Bond Commissionerate Commercial Welfare Association, told TBS, "The software lacks crucial features, such as tracking the last exit date after raw materials arrive at the port, Duty Exemption and Drawback Office coefficient formulas, payment modules for new licences, fabric calculations, and yarn usage formulas for knit composite factories."

 Stakeholder responses and proposed solutions

NBR member of customs bond and presiding officer of the 13 March meeting, Md Moazzem Hossain, remains optimistic that UP can be fully automated within the current fiscal year.

He stated, "Although about 70 to 80 institutions are now taking UP online, nearly 60% have completed preparations to onboard. If 80 institutions can do it, the rest will surely follow. We have no chance to back down from this."

NBR officials noted that the Bond Management Project's term ended in December 2023.

Ideally, a pilot phase should have commenced at least six months earlier to address potential issues, but this was not done, leading to complications during implementation.

Moazzem Hossain acknowledged this oversight and assured that steps are being taken to address concerns.

Meanwhile, the leather goods manufacturers' association official stated that NBR acknowledged these concerns and agreed to allow manual UP approvals for the leather sector until the software is upgraded.

 The impact of automation delays

Since the 1980s, the government has supported ready-made garment exports through this policy, helping Bangladesh achieve the world's second-largest garment export status.

However, irregularities in bond management persist.

It is frequently alleged that raw materials imported under bond facilities are sold in open markets, leading to government revenue losses and harming businesses that import the same materials with duty.

Exporters report that the lack of full automation continues to enable irregularities, harassment, and bribery in customs bond activities.

The leather goods manufacturers' association official claimed that lower-level customs officers are still delaying files and extracting extra payments.

Md Jahirul Islam added, "Bribery collection has not decreased at all." Former NBR Chairman Md Nojibur Rahman previously stated that the government loses approximately Tk50,000 crore annually due to bond facility misuse.

 Future prospects for full implementation

To address these challenges and bring transparency to raw material imports, storage, and exports, the government launched the Bond Management Automation Project in 2017.

Full implementation would ensure that raw material imports, relevant documentation, usage, and warehouse stock are processed online. Information from customs, banks, and other import-export entities would be integrated into a central database, allowing automated UP approvals.

This system would enable automatic calculations of raw materials imported, exports completed, and stock levels in bonded warehouses.

Bond office officials would then only need to conduct a single annual audit to verify actual stock.

Stakeholders believe that successful implementation would eliminate the need for manual approvals, reduce opportunities for irregularities among bond licence holders, and curb illegal transactions, including the unauthorised sale of raw materials in the open market, which would ultimately help improve the ease of doing business.