INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE th June – 1 July 2014 Brussels - Belgium Presentation by: Richard K. Kamajugo Commissioner Customs, Uganda Revenue authority

OUTLINE  INTRODUCTION  DEFINITION OF INFORMAL TRADE  CHARACTERISTICS OF INFORMAL TRADE SECTOR  KEY CHALLENGES  WAY FORWARD

Introduction Informal trade is as old as International Trade; It is a major source of employment in developing countries, providing between up to 70% of total employment in a number of African countries; Informal trade in Africa has always been the response of the population to: economic crises unemployment in the formal Sector Such trade permits the distribution of consumer goods, whether imported or not; It is an ungoverned range of official trade and the major factor driving imports from the rest of the world. Managing informal trade therefore poses a big challenge to most customs administration.

Definition of Informal Trade The definition of informal trade is often used interchangeably with a definition of informal activity; The informal activity is characterized primarily by four elements: It operates on a small scale, with weak levels of organization; Informal employment (relationships are usually based on part-time employment, kinship or personal and social relationships, rather than contractual agreements or formal guarantees ); Individual enterprises are not distinct moral entities separate from the households to which they belong; From a legal perspective, “there is personal, unlimited liability on the part of the proprietor for all commitments entered. According to the International Labor Organization (ILO), the informal sector should be defined independently of: the location of productive activity, the extent to which fixed capital is used, the effective life-span of the enterprise (permanent or temporary), and the principal or secondary nature of the employment” Thus, for the ILO, the unit or formal enterprise must be defined by one of the following criteria: The enterprise or paid workers are not registered; or The size of the unit is not commensurate with its levels of employment.

Characteristics of Informal Trade Practices For Customs control purposes, Informal trade can be grouped into the following: 1) large retail purchases that are traded at international levels; 2)A small, “one-man” operating at local level across borders: on bicycles using hand/push carts disabled person on wheel chairs on motorcycles 3. This are sometimes consolidated after crossing the border.

Characteristics of Informal Trade Practices – Large retail purchases For Customs purposes, informal trade refers to those importers with the following main characteristics: Predominantly cash based transactions; Poorly maintained or non- existent accounting records/ books; No permanent trading premises (very difficult to locate); Easily transfers from one premise to another

Characteristics of Informal Trade Practices – Large retail purchases Operates as individual (keeps on changing names); Deal in high proportions of smaller packages of goods;

Characteristics of Informal Trade Practice – across borders

Is this an NTB?

Key challenges Difficult to trail transaction values; Prone to undervaluation; Cash based transactions: cash receipt or no evidence of payment Post Clearance audit (PCA) cannot be conducted; Greater risk of fraud and difficulty in proving fraud;

Key challenges Continued Liberalisation of the foreign Exchange market; Lack of regulation framework to handle the informal trade practice; International trade versus the cultural norms at the borders; Creates unfair competition in the domestic markets of the importing country; When informal trade is large formal importers tend to under- invoice in order to compete with the informal traders

Way forward In order to address the challenges, Uganda Revenue Authorities has initiated the following programs: Consistent cross border sensitization of border communities ; Harmonization of tax policies and rates Tax education /client awareness programs (seminars/workshops, radio talk show, regular meetings); Use of automated valuation database – check values outside the range;

Way forward continued Encouraging the Informal Trade Sector to form associations and open/transparent dialogues with their leaders.

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