Bangladesh Customs

Department
Prepared For:
Dr. Mahbubur Rahman
Course Instructor
Department of General & Continuing
Education
North South University

Prepared By:
Safat
Faria
 Letter of transmittal

December 27, 2013

Dr. Mahbubur Rahman

Course Instructor, PAD 201
Department of General & Continuing Education
North South University

Dear Sir,

In this Project of Bangladesh Customs Department, we have tried to implement our

learning from this course. We would like to thank you for offering the opportunity to
work on this topic. Despite many limitations, we have tried our best to make this
report accurate and reliable.

If you have any further enquiry concerning any additional information, we would be
very pleased to clarify that. Thank you.

Sincerely yours,

Faria Mahjabin Promi, ID: 1210224030

Meer Tebrak Hossain, ID: 1110432030

1
 Acknowledgment

One of the most pleasant parts of submitting a report is the

opportunity to thank those who have contributed to it.
Unfortunately, the list of expression of thanks- no matter how
extensive is always incomplete and inadequate. These
acknowledgements are no exception.

Our first acknowledge goes to the almighty Allah for

bestowing us the patience and courage to finish this huge task
within its deadline.

Acknowledgments must go to the team members, whose

unflagging patience and astounding capacity for creative work, and
long hours made the project both possible and successful under
the pressure of knocking deadline.

At last, we sincerely acknowledge our debt to Dr. Mahbubur

Rahman, our honorable faculty, for his valuable counseling towards
the improvement of the project. Without his encouragement, this
would have been impossible.

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 Table of Contents
1.0 Introduction................................................................1
2.0 Corruption spiraling in the System...............................3
2.1 The case of Airtel and Grameenphone.................................................6
2.2 The case of textiles..............................................................................6
2.3 The case of cigarette paper.................................................................6
2.4 Forms of Corruption............................................................................. 7
2.4.1 Delay.............................................................................................. 7
2.4.2 Threat of High Valuation or Adverse Classification........................7
2.4.3 Favorable Misclassification............................................................7
2.4.4 Misdeclaration of Quality or Quantity.............................................7
2.4.5 Under-Invoicing.............................................................................. 8
3.0 Organograms..............................................................9
4.0 Problems in the Bangladesh Customs Department.......10
4.1 Corruption.......................................................................................... 10
4.1.1 Delay............................................................................................ 10
4.1.2 Threat of High Valuation or Adverse Classification......................10
4.1.3 Favorable Misclassification..........................................................10
4.1.4 Misdeclaration of Quality or Quantity...........................................10
4.1.5 Under-Invoicing............................................................................ 10
4.2 Delays in Customs Procedures...........................................................10
4.3 Resistance......................................................................................... 12
4.4 Resource Constraints.........................................................................12
4.5 Power Outage.................................................................................... 12
5.0 Recommendations:....................................................13
5.1 Formalize informal payments.............................................................13
5.2 Penalties............................................................................................ 13
5.3 Free from all political programs.........................................................13
5.4 Risk-based selection and examination of goods................................13
5.5 Establish a wide area network...........................................................14
5.6 Ensure sustainability and up gradation of the automate system.......14
5.7 Simplify documentation.....................................................................14
5.8 Capacity building............................................................................... 14
5.9 Improve customs inspection, assessment and control procedures....14
5.10 Publish and disseminate rules and regulations................................14
5.11 Consultation..................................................................................... 14
5.12 Reduce the manual works................................................................15
6.0 Conclusion................................................................15
7.0 References:...............................................................16

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 Executive Summary

Bangladesh Customs Department is a functional entity of the National Board of

Revenue (NBR), which reports to the Ministry of Finance and collects all revenues for
the Government of Bangladesh. The Department is organized into the following three
branches: 1) Customs Houses, 2) Excise and VAT, and 3) Intelligence. There are four
customs houses, one each in Dhaka, Chittagong, Mongla and Khulna. These customs
houses are managed by a Commissioner and charged with collecting customs duty on
imports. The Excise and VAT branch collects the value-added taxes. The Intelligence
branch investigates fraud, evasion, smuggling and other cases concerning the
governments control on the inflow of goods into the country. They control foreign
exchange, arms and narcotics and are also responsible for customs valuation and
audit.

Customs procedures in Bangladesh suffer from manual operations, arbitrary

decisions, corruption and delays in clearance. Despite simplification of customs
procedures in recent times, customs formalities in Bangladesh are still lengthy and
less than efficient.

The direct effect of corruption in customs is a reduction in revenues collected by the

government from import transactions. The loss to the economy from this reduction is
contingent on the efficiency of the government in translating revenues to social
welfare. However, since the government is also involved in corruption, the revenues
that are not diverted by the customs officials are often diverted elsewhere. In such a
scenario corruption in customs is an internal distribution issue among the corrupt
bureaucrats and not a social welfare issue.

Cumbersome customs procedures, layers in decision-making and inadequate use of IT

are still severe impediments to efficient operation of the Customs Department. For
increasing efficiency, a number of steps such as reduction in the number of signatures
required, full use of IT, the use of new technologies in physical, use of reliable
valuation data, and electronic processing of trade documents need to be ensured.
Transparency and accountability by the customs officials needs to be ensured. In order
to protect public health, the economy and community security they need to maintain a
balance between trade facilitation and enforcement of control measures.

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 1

Bangladesh Customs
Department

1.0 Introduction

Bangladesh customs department is a public sector organization responsible for

border control, collecting custom duties and protecting the community from
the potential risks arising from international trade and travel. They are also
responsible for ensuring that they are meeting the safety regulations and that
the products comply with technical and other standards. The customs
clearance procedures are totally under the control of this department. They
also conduct post-clearance audits and process urgent consignments. The
employees of this department have great power associated with their positions.
However they are misusing this power for their personal benefits. They are
engaging in corruption in order to make easy money.

Bangladesh Customs is working under the umbrella of National Board of

Revenue (NBR), which is the apex body for direct, and indirect tax revenue in
Bangladesh. NBR is the major organ of Internal Resources Division (IRD)
under the Ministry of Finance, Government of Bangladesh. The Customs wing
of the NBR deals with the tasks of formulation of policy concerning levy and
collection of Customs duty and related taxes/charges and administration of
matters relating to Customs.

The legislature makes the policies and the bureaucrats are responsible for
implementing those policies. The Bangladesh customs department is
responsible for executing the policies made by the parliament and the Ministry
of Commerce to control imports and exports.

Bangladesh has gone a long way towards modernizing its customs

administration through massive computerization of customs offices and
complete automation of customs procedures. This was done through the
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introduction of the software ASYCUDA (Automated System for Customs

Data). Lack of funds and human resources, a disconnected vision and the fear
of change particularly by those with vested interest have hampered post-
automation works. The post-implementation costs associated with automation
exceeded the cost of implementing the new automation system. However,
today the ASYCUDA++ System is being used by all the Custom Houses in
Bangladesh- namely, Chittagong, Dhaka, Benapole and Mongla.

The major features of the ASYCUDA system used by Bangladesh Customs

are:

Declaration processing

Selection of Lane (Green, Yellow, Red)

Assessment of Goods

Payment and Release of Goods

Log Register of users

In 2008, NBR introduced a Single Window System at the Chittagong

Custom House. This project introduced Bill of Entry Module for online
submission of customs declarations (Direct Traders Input) by importers or
C&F agents, and Manifest Module for online submission of Import
General manifest/Export General Manifest by shipping agents.
 3

Figure1: The ideal procedure for customs clearance.

2.0 Corruption spiraling in the System

The customs officials perform highly technical tasks in the clearance process
of imported consignments. It is in this process where they misuse their power.
There are also customs brokers called Clearing and Forwarding Agents who
are knowledgeable about the customs regulations. Thus they also sometimes
get involved in corruption. Some politicians of our country also misuse their
power and pressurize the bureaucrats in the customs department to make
unethical and swift decisions. These politicians in return receive payments,
which is against the law of the country.

Thus we can say that the corruption in the customs department of Bangladesh
involves four parties:

1) Customs officials,

2) Customs brokers

3) National Board of Revenue officials, and

4) Politicians.
 4

Figure 2: Illegal aspects of customs clearance.

Figure 3: The role of National Board of Revenue in illegal customs clearance

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Figure 4: The role of politicians and hooligans in customs clearance.

The customs officials exploit their power at three different points during the
clearance process of imported goods:

1) Physical examination of goods,

2) Their classification, and

3) Their valuation.

Bangladesh customs department should follow the rules and regulations set by
World Customs Organization, but this happens at rare occasions. Assigning
description, H.S. Code and value to imported goods is very much open to
dispute and thus allow people to exploit the rules and regulations. Due to the
problems in the bureaucracy of our country the importers appoint the C&F
Agents to clear their goods. These agents in turn also sometimes bribe the
customs officials to get their work done. The importers appoint C&F agents to
clear their goods. As per legal rules the importers should hand over all the
necessary documents to these agents along with money required to pay custom
duties, advance income tax, fees and other charges. All these costs are
calculated based on the value of the imported goods and this is where most of
 6

the corruption takes place. The customs brokers ask for extra funds from the
importers to pay the customs officials so that they under value the imported
goods and also speed up the clearance process. This reduces the overall costs
including taxes and other charges payable on imports. The customs brokers
taking benefit of the situation take much more money from the importers than
they pass on to the customs officials.

The chain of corruption does not stop here. The officials of the National Board
of Revenue (NBR) are also involved. They have the power to start disciplinary
punishments and investigate any field level officers. However, instead of
exercising this power they are accepting large amounts of money from the
importers and the agents to overlook the corruption, taking place in the lower
levels. This is how corruption enters the upper levels of the bureaucracy. The
politicians also receive a significant portion of the illegal payments for
customs clearance, which they use to finance their luxury lifestyles. This is
how corruption spirals in the system.

Some importers have the tendency to submit false invoices to Customs.

1.1 The case of Airtel and Grameenphone

The recent detection of gross under-invoicing and incorrect

classification of goods imported by Airtel and Grameenphone at Dhaka
Customs House, Bangladesh (The Daily Jugantor, 7 February 2011)
highlights importers tendency to undervalue with a view to evading
duties and taxes.

1.2 The case of textiles

Bribes are being paid to the customs agent to facilitate importation of

textiles for resale classified as tax-free raw materials for garments
manufacture. It is estimated that Tk.25 per meter of cloth in tariff is
saved at a cost of Tk.10 in bribes and another Tk.5 in agency fees. The
back-to-back letter of credit used for these imports are normally
forged. The clearing and forwarding agent is complicit or non-existent
in these cases.
 7

1.3 The case of cigarette paper

Cigarette paper is being imported as writing paper with a reduction in

the duty from 40% to 25%. The dramatic reduction in the import of
cigarette paper according to customs department data without any
reduction in cigarette manufacturing is convincing evidence of this
form of corruption.

The degree of discretion and monopoly power of customs officials, the

absence of accountability and the extent and complexity of restrictions on free
trade are directly related to corruption in the Department. Corruption occurs
both in the assessment of value and collection of duties by customs officials
and in the adjudication of charges against them by higher officials.

1.4 Forms of Corruption

1.4.1 Delay

The Customs Act prohibits undue delay in clearing of imports

but an insufficient definition of the term undue delay
provides an opportunity to customs officials to hold the goods
indefinitely in order to extort bribes.

2.1.1 Threat of High Valuation or Adverse

Classification

Importers pay a duty based on the value of the goods at a rate

that depends on their classification. The amount of duty the
importer pays depends on subjective and somewhat arbitrary
decisions of the customs official with respect to valuation and
classification. Customs officials use this power to extort bribes
from importers.
 8

2.4.3 Favorable Misclassification

Importer pay bribes to the customs agents to facilitate

importation of goods bearing high rates of import duty, by
misclassifying them as goods bearing lower rates of import
duty

2.4.4 Misdeclaration of Quality or Quantity

Recording the trade items as damaged, defective or otherwise

of lower quality may lower the rate of tariff. Understating the
amount of the shipment in the customs declaration may reduce
the net amount payable. Either or both of these misdeclarations
may be arranged with a corrupt customs agent as the agents
discretionary decision in the matter are unchecked and
unchallenged.

1 Under-Invoicing

When the commercial invoice from the exporter is a source

document for valuation purposes, collaboration among the
importer, exporter and customs agent make its possible to set
the invoice amount to a suitably low value and thereby evade
custom duties.
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1.0 Organograms

Figure 5: Organogram of the Ministry of Finance

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Figure 6: Organogram of Bangladesh Customs Department

2.0 Problems in the Bangladesh Customs
Department

The Customs Administration in Bangladesh has remained committed to

modernizing its custom assessment and clearance procedure through
computerization and automation. However, the Administration has to
constantly deal with various issues, such as tension between tradition and
modernity, the issue of necessary resources, the problem of inadequate
infrastructure and so on.

1.5 Corruption

The issue of corruption among the customs officials is often cited. The forms
of corruption are:

1.5.1 Delay

1.5.2 Threat of High Valuation or Adverse

Classification

1.5.3 Favorable Misclassification

1.5.4 Misdeclaration of Quality or Quantity

1.5.5 Under-Invoicing

1.6 Delays in Customs Procedures

Despite simplification of customs procedures in recent times, customs

formalities in Bangladesh are still lengthy and less than efficient, leading to
problems in the prompt delivery of goods from Customs.

Regarding the delays and arbitrary decisions by Customs, many respondents

from the trading community stated shortage of manpower and logistics along
with discretion in the Customs Act have been the reasons behind delay in
delivery of goods. Lack of necessary personnel, and physical facilities such as
 11

inadequate IT facilities, inspection equipment, office equipment and testing

facilities stand in the way of quick customs clearance.

Under-invoicing and incorrect classification results in an increased

dependency on physical verification, often in the presence of other
organizations such as Customs intelligence directorate resulting in further
delays in customs clearance. Excessive documentation, physical inspection,
and sometimes multiple inspections in the presence of more than one agency
cause lengthy delays and cost escalation in customs clearance.

Inadequate testing facility in Chittagong Customs House is another reason

behind increases in processing time. The Chittagong Customs House is not
equipped with modern instruments and also lacks skilled technicians, re-agent
and other supplies necessary to test huge import consignments of chemical
items. The samples have to be sent to Bangladesh Standards and Testing
Institution (BSTI) or Bangladesh Council of Scientific and Industrial Research
(BCSIR), which is time consuming.

It has been seen that no recruitment took place at the inspector or appraiser
level in the last 25 years. For this reason the department is running with an
inadequate workforce and with lower level staff who are not well qualified to
do the jobs. Customs do no have access to the current market price of goods
due to capacity constraints of the Valuation Commission. This leads to
disputes between Customs and importers on valuation aspects. Also
requirements of approvals by multiple officials on the same customs
declaration also cause delays in releasing goods. However significant efforts
have been taken to simplify the customs procedures.

Introduction of online facilities to submit declarations, risk-based examination,

reduction in the number of signatures required for clearance, and reduction of
physical inspection from 100 per cent to 10 per cent, made customs
procedures faster. The customs authority has installed container scanners at the
Chittagong Port under the Chittagong Port Trade Facilitation Project. This
facilitates faster clearance of goods by enabling quick examination of both in-
and out-bound cargoes. The introduction of Pre-shipment Inspection (PSI) has
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also improved the situation to some extent. PSI agencies are responsible for
inspection of imported goods before their shipment and issue of Clean Report
of Findings (CRF) certificates containing the description, value, quantity, and
classification of goods. However, the system gradually became ineffective and
corrupt and still there are problems such as errors in classification and
valuation of goods and delays in issuing corrections by the PSI agencies.

1.7 Resistance

The customs brokers (C&F agents) showed stiff resistance to the introduction
of Direct Traders Input system at Chittagong and Dhaka Custom Houses. The
lower level officials within the NBR took time to adjust themselves with the
changes brought about by the automation.

1.8 Resource Constraints

Resource constraints made the NBR dependent upon the donor agencies for
implementing the computerization programmes. Thereby, once the donor-
funded project ends, Customs Administration finds it difficult to continue
maintenance and servicing of computer logistics procured during the project
period.

1.9 Power Outage

Frequent power outage has remained a major problem in the automation at the
Customs Houses. However the problem has been recently resolved at
Chittagong Customs House with the installation of a high-powered stand-by
generator.
 13

2.0 Recommendations:

Bangladesh Customs needs to vigorously pursue its efforts through adopting

the following measures:

2.1 Formalize informal payments

Formalize informal payments by offering the clients the choice of a premium

service for an extra fee.

2.2 Penalties

Increase penalties for corruption. These would cover not only the acceptance
of an illegal payment but also the offering an illegal payment. A Commission
of Inquiry needs to be formed to obtain evidence that can be used in the court
of law to achieve successful prosecutions.

2.3 Free from all political programs

It is vitally important for the political leaders to keep the Customs Houses free
from all political programs.

2.4 Risk-based selection and examination of

goods

Encourage Customs agents to identify high-risk transactions by providing an

appropriate set of rewards and penalties. Through risk profiling, Customs
should replace random examination of goods and documents with risk-based
selection and examination of goods, transport and persons. Factors such as
commodity code, the history of the importer/exporter and their level of
compliance, the origin and routing of the goods, value, reputation of the agent,
duty involved and prohibitions should be used in selecting which persons,
goods and means of transport will be examined and to what extent.
 14

2.5 Establish a wide area network

Establish a wide area network to bring all stakeholder under one computerized
system, including customs, port authority, customs agents, shippers, trader and
banks.

2.6 Ensure sustainability and up gradation of the

automate system

Take appropriate actions to ensure the sustainability of the computerized

system. NBR needs to upgrade the automated system of Bangladesh Customs
through the implementation of the ASYCUDA World as soon as possible.

2.7 Simplify documentation

Further simplification of documentation requirements in Customs is necessary.

2.8 Capacity building

Capacity building in Ports and Customs through adequate logistics, manpower

and training is required. Establish testing laboratories in Ports/Customs
houses.

2.9 Improve customs inspection, assessment and

control procedures

Improvement in customs inspection, assessment and control procedure is

needed to avoid writ petition and litigation by importers.

2.10 Publish and disseminate rules and regulations

Timely publish and disseminate trade rules and regulations and establish
enquiry points providing necessary information on import and export
procedures and practices for use by traders and the public.
 15

2.11 Consultation

Consultation with stakeholders for proper implementation of regulations,

mutual trust and cooperation will help to overcome the current problems.

2.12 Reduce the manual works

Reduce the number of signatures required, make full use of IT, use new
technologies for physical inspection (large-scale X-ray and gamma-ray
machines), use reliable valuation data and ensure electronic processing of
trade documents.

3.0 Conclusion

Bangladesh Customs Department has an obligation to better serve the trading

community. Development of service mentality in the customs officials is
necessary. Reorientation of customs authorities from a revenue collection to a
trade facilitation focus would immensely benefit the country by promoting
increased trade, investment and growth. The implementation of the above
stated recommendations may lead to high degree of efficiency in the
department. The main challenge for Customs is to strike a balance between
apparently conflicting objectives, that is, quick clearance for trade facilitation,
and enforcement of control measures to protect public health, the economy
and community security.
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4.0 References:

Primary Research:

The person interviewed:

Md. Rafiquddin Bhuiyan
Director
Multitex Pvt. Ltd.

Interviewed By:
Faria Mahjabin Promi

Date of interview: December 15, 2013

Secondary Research:

http://www.nbr-bd.org/customs.html

http://www.worldcustomsjournal.org/media

http://www.unescap.org/tid/projects/tfforum_bang.pdf

http://www.ti-bangladesh.org/oldweb/index.php?page_id=373

http://www.humanrights.asia/resources/journals-
magazines/article2/0901/08anti-corruption-mechanisms-in-bangladesh