Combating Illicit Flow of Excisable Products Revenue Benefits of Comparing Customs and Revenue Data

Introduction A good Customs IT system and database have significant benefits: Tax/revenue, fiscal, monetary, statistical, and macroeconomics; Facilitation of domestic [direct and indirect] tax administration; and Enhancing support to, and compliance by, taxpayers. Border controls: links security of nations and bilateral/multilateral cooperation However, these depend on efficient & effective interfaces and integration of systems supporting tax, customs, and other operational functions.

Elements of Customs Operations Registration, filing and payments Same TIN/NIN used for domestic tax and customs registration Tax office codes or numbers: assigned to all importer/exports Valuation and classification HS/Customs Tariff schedules: recognized & comprehensive nomenclature for goods (trade and protection); and revenue flows (import duty, tax and levies); Useful for BoP (forex flows and measurement); and other statistics GDP [C+I+(E-M)]; BOP [E-M]; Deficit [R-Expenditure

Elements of Customs Operations Compliance and enforcement (revenue) Customs compliance: based mainly on invoice manipulation and false declarations Customs databases can support domestic tax collection, audits and investigations Customs post-clearance audits and integrated risk management modules Physical inspections: verification and validation of goods and records

Elements of Customs Operations Compliance and enforcement (non-tax) Post release audits already a recognized collaborative tax/customs function Customs data and information can support investigations into illicit and criminal information in many areas Border and immigration controls: illicit financial flows and money laundering [and manipulation]; people trafficking, drugs, arms; terrorism etc.

Elements of Customs Operations Interface of organization, systems and process Customs is now part of revenue authorities in many countries Makes it easy to merge and interface revenue databases Data-match of values on returns Automatic comparison of import/export and domestic tax declarations Turnover or sales levels [import/export values and sales/profit declarations] Taxpayer support Primary or frontline services to assist taxpayers to comply Intermediation: third party assistance to taxpayers [records and accounting]

Example of Ad Hoc Exercise Ghana: case study of ad hoc exercise Selection of import and export data for top 5,000 importers (scaled down to 2,500) Data sent to domestic tax offices for importers Some importers did not have a TIN [registration] or code to show their domestic tax offices [LTO, MTO, LTO] Comparison with domestic turnover declarations showed significant differences

Example of Ad Hoc Exercise Ghana: case study (continued) Similar with declarations for VAT Input Tax Credit (ITC) and refunds Non-compliance notices (with additional assessments) were sent to taxpayers Majority did not contest the assessment and paid up Voluntary compliance: word got round and several taxpayers appeared in offices to pay assessment and penalties

Example of Ad Hoc Exercise Ghana: case study (continued) Some fundamental problems Tax and customs systems not fully integrated and lacking interfaces TIN & Tax Office numbers not on Customs declaration or databases Major customs offices not helping to enforce registration of taxpayers No program exists for such exchange of information (but domestic tax offices have read only terminals

Further practical examples Important to have customs integration to work with VAT administration Threshold: use of import/export values to check violation of VAT threshold Import VAT: import VAT collected as though it were an import duty Input Tax Credit (ITC): use of customs declaration support the validation of zero-rating [exports] and ITCs Excise administration Use of customs databases and stamps (banderols] to monitor domestic stocks and sales activities

Further practical examples Post-clearance audits Acceptable tax compliance practice involving domestic tax officials Financial flows and money laundering Customs processes involves significant global movements of funds in different currencies and at different exchange rates [declaration and invoicing] Borders controls Customs institution monitor the physical movement of goods (e.g., manifest, invoices, declarations etc.,) and persons (e.g., customs/immigration declaration); Many involvw criminal and illicit activities

Conclusions The use of customs data for administration and compliance may be impeded by a number of factors, including Poor integration and interface of tax and customs IT systems Absence of useful informations (e.g., tax-office numbers or codes) Absence of critical modules and use of different platforms in tax and customs Absence of programs and management information reporting Poor coordination, even within revenue administrations