Curbing abuse of bonded warehousing facility

Dhaka,  Thu,  21 September 2017
Published : 11 Jul 2017, 20:50:01

Curbing abuse of bonded warehousing facility

Saleh Akram
It is an open secret that a large number of export-oriented industries and packaging units have long been misusing bonded warehousing  facility and thus depriving the government of a large amount of revenue. They are doing so by way of selling raw materials imported under duty-free facilities. Recently Dhaka Bond Commissionerate has decided to come down hard on the offenders to reduce the recurring loss. The volume and extent of duty evasion are being probed into and specific charges are being prepared for official and legal action. This is the strongest ever move made by the government. 

The Directorate of Customs Intelligence and Investigation has been preparing reports on illegal sale of imported raw materials and furnishing the same to the Bond Commissionerate for necessary action. Usually, when cases of duty evasion are unearthed and the matter taken to court by the authorities, writs are filed by the concerned companies on some pretext or the other. In this way, the issue of duty evasion remains unresolved for years.

Bonded warehousing facility is provided to export-oriented industries for importing inputs/raw materials and packaging materials without paying any duties or taxes. Under the facility, the export-oriented industries mainly belonging to the ready-made garment (RMG) sector and its linkage industries are allowed duty-free import of raw materials required for production of export items on condition that they will produce finished goods using the raw materials and thereafter export the products. Sale of bonded products on the local market is prohibited. 

The National Board of Revenue (NBR) provides bonded warehousing benefits to encourage export-oriented industrialisation and facilitate exports. Availing the bonded warehouse facility is important for the export-oriented industries as it enhances their export competitiveness. Bonded Warehousing facility is enjoyed by both direct exporters and deemed exporters. 'Deemed exporters' are those industries that do not have any direct export operations, and instead carry out their activities through subcontracting and receive their proceeds in foreign exchange through local back-to-back letters of credit.

Under the circumstances, NBR is going to review the current policy measures with a view to preventing duty evasion by businesses through misuse of duty-free import facility. Rationalisation of the duty structure for export-oriented industries and commercial importers would be the main focus of the review. NBR has taken the move in the wake of an increasing trend of duty evasion in recent years. Countless allegations are there regarding importers enjoying bonded warehouse facility and selling the bonded products in the domestic market. According to NBR, the government loses around Tk.580.00 billion in duties a year due to the misuse of the bond facility. 

The Customs Intelligence and Investigation Directorate detected that just 15 export-oriented industries evaded Tk.3.42 billions in duties through selling the bonded products in the domestic market in the last eight months (July-February) of the current fiscal. The companies imported accessories, paper and carton for readymade garment industries for export purpose. Commercial importers have also been filing allegations to the revenue board about the misuse of the facility that hurt their business interests. 

Dhaka Bond Commissionerate has taken a few moves in order to reduce revenue loss of the government. Earlier, Dhaka Customs informed the Commissinerate of duty evasion worth Tk.4.75 billions in last three months by 60 companies against import of fabric and chemicals under full duty free facility. In fact, bulk of the Tk.2.01 billion recovered by Dhaka Customs Bond Commissionerate during the first quarter of the current fiscal year accounts for unpaid revenue. There are 479 garments factories under Dhaka Bond Commissionerate which have bond licences with no factories of their own. What needs to be looked into is how could they obtain bond licences without having factories. The bank accounts of these companies and their directors may be frozen alongside instituting criminal suits against them for evading government revenue. Bond licences of 1757 organisations out of a total 6565 have been suspended by Dhaka Bond Commissionerate on account of various irregularities. Bank accounts of 133 organisations and their 446 directors have been frozen. But what happened to remaining 2438 garments companies and packaging units with bond licences is not yet known. 

Utilisation Declaration (UD) is another misty area. A factory owner takes an UD after obtaining an export order for 100,000 pieces of shirt and imports 250,000 yards of fabric at a rate of 2.5 yards per shirt while the actual requirement is 200,000 yards @ 2.0 yards per piece. The company sells the remaining 50,000 yards in open market illegally. There are similar other irregularities regarding import of merchandises. For example, in many cases, import of such raw materials is allowed which are necessary for manufacturing the relevant products but not to the extent they are imported. Resin and Eva are two such chemicals which are imported extensively, but are utilised sparingly in the manufacturing process. At present, huge volumes of similar merchandises are being imported through bond apart from back to back L/C.

A specific set of policy should be framed in this respect incorporating the provision of depositing a large portion of the evaded duty to the court before filing a writ by the allegedly defaulting company. This will enable the government to realise at least a portion of the revenues alleged to be evaded. Above all, the Bond Commissionerate in can recommend specific proposals to NBR for realising the evaded revenues from the defaulting companies. 

The number of industries in the country has increased over the years without proportionate increase in the required manpower for revenue collection. In view of the increasing number of industries in the country and volume of revenue, it is necessary that number of field level employees should be raised accordingly, otherwise the task of realising government revenue can not be accomplished properly.    

Steps taken recently by Bond Commissionerate are well conceived and long awaited. But it should not be an end in itself, rather a means to an end. Regular monitoring and vigilance should continue alongside legal action to minimise revenue losses of the government inflicted by a section of dishonest garment manufacturers. If the NBR moves according to a well-devised plan, recovering the evaded tax amount should not be too challenging.

Editor : A.H.M Moazzem Hossain
Published by the Editor for International Publications Limited from Tropicana Tower (4th floor), 45, Topkhana Road, GPO Box : 2526 Dhaka- 1000 and printed by him from City Publishing House Ltd., 1 RK Mission Road, Dhaka-1000.
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