4 years ago

Pre-budget discussions

Focus on draft Customs Act 2018

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Once upon a time, customs tax was the main source of revenue generation for the government. Thanks to open market policy, this gradually changed over time. Now, tax at domestic level is more important while Value Added Tax (VAT) has taken the first position.

Government allows and encourages industrial raw materials to be imported at a lower tax rate. This is done so that industries can get some relief while export industries are allowed bonded warehouses and can import raw materials duty-free. As Bangladesh is promoting export-led growth strategy, export is supported by a number of incentives. On the other hand, commercial importers face comparatively higher duties.

The country is dominated by a large number of Small and Medium-sized Enterprises (SMEs). They usually collect raw materials from commercial importers. So there is a serious need for simplification of the customs procedures, establishment of a modern customs department and having an efficient port.

For industrial development, import of raw materials would need to be hassle-free and less cumbersome as about 70 per cent of the raw materials are imported for industries of the country. In addition, heavy machineries, equipment and essential food items are also imported regularly. In view of this, chambers and associations have submitted a number of proposals for simplification of customs policy and modernisation of port infrastructure.

The draft Customs Act 2018 is likely to be implemented soon. Though some issues have been addressed through additions to the Act, a lot more needs to be addressed. Pre-budget discussions are now going on in full swing. Finance Minister AHM Mustafa Kamal has already assured that there will be no new tax burdens for businesses. It has also been confirmed that among the new policies, the VAT & SD (supplementary duty) Act of 2012 will be made effective through the announcement of the upcoming budget. However, there has been little mention about the new Customs Act 2018, though it is available in the website of the National Board of Revenue (NBR).

AUTOMATED SYSTEM FOR CUSTOMS DATA: Modernisation of customs activities and integration of off-dock and on-dock activities have long been discussed. But this has not improved. Ensuring coordination among shipping agents, Automated System for Customs Data (ASYCUDA) and Chattogram Port Authority (CPA) in a bid to keep the port authority operational 24-hours has been among some of the requests from the private sector. Introduction of more on-line connectivity could pave the way for simplification.

ASYCUDA could not be implemented properly because of lack of connectivity outside the docks. Chattogram Port Authority and Chattogram Customs need to be connected in order to provide all kind of support services quickly for import procedures. A number of countries have opted for online connectivity and it has simplified the customs procedures for them. But the processes for its implementation in CPA are yet to start.

Amendment of the EXP form, which is important for import of goods, has not happened either. The document explains prices, amount and many other details. At the moment, importers and exporters need to go to the banks several times. This leads to waste of time and other resources for them. Hard copy of EXP and LC submission should be eliminated. These can be completed by the entrepreneurs themselves.  It will help to reduce cost of doing business also. A committee in Bangladesh Bank was formed to take opinions in this regard. Chattogram Custom House (CCH) needs to properly explain that EXP and LC hardcopy submission system were eliminated. At the same time e-payment will also have to become mandatory to reduce hassles for businesses.

Additionally, there is a long list of definitions included in the new Act.  In chapter one, section 2(2) of Customs Act, where the definition of importer is included, roles and responsibilities of importers could have been mentioned. Similar is the case for exporters mentioned in section 2(42). Further clarification is also required for customs procedures (chapters 13-20, section 108-163). Under the customs procedures for export and import, nine procedures are mentioned. These are for domestic consumption, temporary import, inward and outward procedures, warehousing, transshipment, export shipment and storage etc.  But there is no mention of conditionalities of use and disposal. If these are included, it will help the government protect the country from overuse of goods hazardous for the people.

The provision for "Deminimise Value" of import has been mentioned in section 26 of Customs Act 2018. The amount allowed by the customs officials is only Tk 2,000. Businesses believe that this provision can be replaced with at least Tk 5,000, to help businesses avoid hassles arising out of a very simple amount of import of important products such as samples. 

There is still no provision for "Re-testing of Goods/Accredited Labs". If the goods being imported or exported fail during initial examinations or if the results are not in favour of the importers or exporters, then importers and exporters have the right to go for retesting of its products. There may be some faults in the initial examinations. Some designated labs can be assigned in that respect.

AUTHORISED ECONOMIC OPERATORS: Authorised Economic Operators (AEO) is going to be included in the new law and for this some provisions have been created following trade facilitation agreement. Customs Act 2018; Chapter 12 (Section 107) and SRO No. 214/AIN/ 2018/37/Customs have already implemented to allow the provision of AEO. Three pharmaceutical companies (Beximco, Incepta and Square) have been recognised as AEOs. If the benefit is provided, SMEs would enjoy simplified import process and raw materials import, which would help them gain overall competitiveness. It would also help them to support the large industries as backward linkages. AEO for small businesses and homogenous industries that are using similar raw materials for production can be chalked out.

There is no specific section for "Refund" in chapter-7 of the draft Customs Act 2018. There should be a separate section for "Refund". This should explain the time frame and process for claiming refund, which has been paid wrongly or excessively during import of goods. Refund is one of the perennial problems of tax payers. Issues related to it tend to create animosity between tax payers and tax collecting authorities.

Deemed exporters plays a significant role in the export earnings of a country. But in the present Customs Act, there is no definition of 'deemed export'. New Export of 2018-2021 has been aligned with the VAT and SD Act. In case of raw material import and export promoting  incentives like cash incentive, use of bonded warehouse facilities are not enjoyed by deemed exporters as they are not  registered with the export promotion bureau.

Sample importers will be subject to penalties on the import of sample items done without open L/C. This will be applicable if the value/amount/numbers of imported sample items exceed the limit stated in the Import Policy. As sample item has no commercial value, these are imported for research and development purposes and are not for sale in the local market or to re-exported abroad. So there is absolutely no need for having an open L/C to import sample items.

Unfortunately, customs imposes penalties on the imported sample item while the importer releases the goods in ASYCUDA System. In ASYCUDA System, all the imported goods and products are classified under IM7 & IM4. But the officials of Customs House classify and list the imported sample items under IM4 (import for commercial purpose & subject to payment of duty and tax) instead of IM7 (bond import & not subject to payment of duty and tax) and impose duty and tax on imported sample items. In the upcoming import policy, there is a need for a clear definition of imported samples so that samples can be released at the earliest to help increase export.

MEGAPROJECTS, LOCAL AND FOREIGN BIDDERS: With the implementation of megaprojects, Engineering, Procurement, and Consultancy (EPC) has been on the rise. But there is clear discrimination between local and foreign bidders. For foreign bidders, procuring entities pay complementary duties (CD) and VAT. But for local bidders, procuring entity do not pay CD & VAT making local bidders uncompetitive. This is why, CD for local bidders, in the case of EPCs, should be similar to that of foreign bidders. Foreign bidders also take help from the local bidders to increase their competitiveness in business. But local bidders face discrimination in supplying their services directly or through foreign bidders as their services are heavily taxed.

Additionally, foreign bidders sometimes quote dumping prices for some items just to win the bid. In case of local bidders, there is no such scope for quoting dumping price as they are bidding from inside Bangladesh. Dumping price should be protected by the utilities to prevent inexperienced bidders to win bids, causing the project to suffer in execution (for example, a task or project to be executed in one year may be completed in 4/5 years) and inferior products ruins project lifetime.

In Customs Act 2018, the provision of "Advance Ruling" is absent. Previously it was done by following an SRO (SRO No. 146-AIN/2017/32/Customs). A new section on "Advance Ruling" needs to be incorporated in Chapter 11 (Cargo Delivery & Inward entry) of Customs Act 2018.

There is no mention that the amendment of bill of entry is free of cost in the new Customs Act 2018. This should be clearly mentioned in section 96 (Chapter Twelve: Goods declaration and clearance) of the Act.

More discussions are necessary to make customs policy simple and supportive for the industries and people of the country. Customs policy is one of the very important elements that support economic development. The draft Customs Act 2018 should be given as much importance as the VAT and SD Act 2012.


Ferdaus Ara Begum is CEO of Business Initiative Leading Development (BUILD), a public private dialogue platform, supported by DCCI, MCCI and CCCI.

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