This paper, based on the considerable practical experience of the IMF’s Fiscal Affairs Department, sets out a successful strategy for modernizing customs administration. The essence is to establish transparent and simple rules and procedures, and to foster voluntary compliance by building a system of self-assessment supported by well-designed audit policies. Having set out this strategy--and its benefits--the paper discusses in depth what is required in terms of trade policy, valuation procedures, dealing with duty reliefs and exemptions, controlling transit movements, organizational reform, use of new technologies, private sector involvement, and designing incentive systems for an effective customs administration.
One of the great ironies of intellectual history is that Adam Smith, the apostle of free trade, ended his days as a Comptroller of Customs. By the same token, it may seem strange that the International Monetary Fund (IMF), committed to the principles of free trade, should devote a good deal of its technical assistance activities to strengthening the performance of customs administrations. In each case, however, the explanation is easily found. For Smith, the position of Comptroller at Kircaldy, a post his father had also held, was an attractive sinecure (as customs posts continue to be in all too many countries). For the IMF, the support of improvement in customs administration reflects the recognition that although customs administration would wither away in an ideal world, in practice trade taxes are likely to be a significant source of revenue for many of its members, especially developing countries, for the foreseeable future; and that if trade taxes are to be levied, it is best that this be in a way that does least collateral damage to international trade flows.
Goods being carried under transit are generally not subject to the payment of duties and taxes, provided the conditions laid down by the customs administration are complied with.109 Customs transit systems are designed to facilitate the movement of goods crossing the territory of one or more states without jeopardizing revenue through diversion of such goods to the domestic market. To do this, while avoiding excessively burdensome and costly formalities, a balance has to be struck between the requirements of the customs authorities and those of the transport operators. This chapter considers how this might best be done.110
This chapter outlines the type of organizational structure that is required to deliver effectively and efficiently a customs administration program: a decentralized structure consisting of headquarters, regional, and local offices. It then discusses current trends that are emerging in organizing customs (and tax) administrations.
The purpose of this chapter137 is to outline an approach to promoting integrity—that is, reducing corruption—in customs administrations. It does not deal with the economic impact of such practices,138 but instead provides a framework for changing the incentive structure and for establishing the legal and administrative procedures that are necessary to detect, punish, and reduce such undesirable behavior.139
Many governments in developing and transition countries have engaged the private sector to provide certain services that have traditionally been the responsibility of the customs administration. This option is often seen as a way to address corruption, as well as to combat smuggling and improve customs revenue collections more generally.
The position of customs officer may not be quite the oldest profession in the world, but its lineage is ancient: the Bible refers to a customs collector called Zacchaeus153 (who was corrupt but, happily, reformed). And the profession is still in a state of change—perhaps more so, indeed, than ever.
For many decades, and despite the conclusions of classical economic theory in favor of free trade, the opening up of an economy to trade was widely regarded as a good idea only for developed countries with strong industrial sectors that could stand up to competition without protection.16 A complete reversal of economic thinking on these issues for developing countries came toward the end of the 1970s. While free trade has thus gradually become the declared objective—at least ultimately—of almost of every country, defining and applying strategies for reaching this goal has been no easy task. Under these circumstances, trade and tariff policies are key issues for developing countries, especially since taxes on imports are a mainstay of their government revenues (as seen in Chapter 1). Their evolution has had a strong and direct influence on the customs administrations that are responsible for implementing them.
Most customs administrations are undertaking reform of their operations—even the most advanced see modernization as a continuing process—with change being driven by a desire to achieve the objectives of revenue collection, trade policy administration, and interdiction in the most effective and efficient manner possible. Reform is ongoing, with each customs administration at a different point on the reform spectrum. “The old maxim that ‘the only constant is change’ is no longer a clever statement of contradiction but a dominant reality of business life.”61
A central element in reforming customs administration is the streamlining of basic procedures, with the aim of enhancing revenue and quickening customs clearance operations. This chapter considers the three main areas of the customs process prior to release of goods from the point of entry that typically require attention: the control of manifests, the assessment and verification of duties due, and procedures for the payment and collection of those amounts.