Corrupt customs service

Corrupt customs service

Indonesia's customs service is certainly no less corrupt than
the tax office. After all, they are both part and parcel of a
government that has been perceived to be one of the most corrupt
in the world.

Collusion to avoid or reduce payment of import duties is
simply a reflection of the generally low level of tax morality in
the country. Understandably, companies whose tax payments are
based on negotiations with corrupt officials, rather than on
actual incomes and expenditures, see it as sensible to extend
such collusive deals in their payment of duties on their imports.
The risk of being caught is quite small, as can be seen from the
few cases of tax evasion or manipulation brought to court even
though the tax ratio and taxpayer base in the country are the
smallest in Asia.

A nationwide diagnostic study on corruption conducted early
this year under the sponsorship of the World Bank and United
Nations Development Program also confirmed that the customs and
tax services are the most corrupt public institutions in the
country.

But why the sudden fuss about the corrupt customs service,
which prompted President Megawati Soekarnoputri last Wednesday to
meet with the executive board of the Indonesian Importers
Association (Ginsi)?

The difference in the urgency of the issue lies in the impact
it has on the economy. The most damaging effect of malfeasance
within the tax office is state losses of revenue as the
government gets much less than what is due from taxpayers.

But corruption within the customs service has a more far-
reaching effect on the economy. Besides cutting government
income, violations of customs rules also cause distortions on the
domestic market because foreign goods, on which lower duties and
taxes than what is mandated by law are paid, pose unfair
competition on domestic products. Outright physical smuggling,
which is also believed to be rampant given the vast coastal lines
across the archipelago, also has a similarly devastating impact,
but preventing this contraband trade is the joint responsibility
of the customs service and the military.

The corruption-infested customs service was stripped of its
import inspection authority in 1985, when the government
introduced a preshipment inspection system for imports and
entrusted the system to the Geneva-based Societe Generale de
Surveillance (SGS) and later to a state-owned company.

As Ginsi chairman Amiruddin Saud told reporters after his
meeting with President Megawati, the state loses almost Rp 30
trillion (US$3 billion) a year due to the underinvoicing of
imported goods. But more damaging is the unfair competition
imposed on domestic manufacturers at a time when they have to
depend more on local demand.

Businesspeople insist that corrupt mentality, rather than
technical incompetence or lack of equipment, seems to be the core
problem. But it is almost impossible to expect the customs
service to be an incorruptible island in an ocean of corruption.

As soon as the new customs law was enacted in 1995, the
customs service promised dramatic improvements in import
inspection if it regained its import inspection authority. The
customs service promised to minimize corruption by introducing an
electronic data interchange (EDI) system that would allow all
communications between officials, importers and banks in the
determination and receipt of customs duties and tax by modem
transmitted to the customs EDI clearing house.

However, improvements lasted barely one year after it regained
its inspection authority in 1997 and the system within the
customs service was back to the corrupt "business as usual"
mentality that dominated the customs service before 1985.

Corrupt mentality is a disease that cannot be cured within one
or two years and cannot be treated in isolation from other
government and state institutions.

But the problem within the customs service is crucial,
requiring urgent, bold measures.

The customs service plays an important role not only in
preventing underinvoicing but also in facilitating the smooth
flow of imports, which is vital for the domestic manufacturing
industry due to its heavy dependence on imported materials and
components. In fact, almost all export-oriented factories depend
largely on imported materials, as reflected in the domination of
industrial materials in the country's import composition.

The government therefore should seriously consider reapplying
the preshipment inspection system, like the one enforced in 1985,
which proved its great benefits: facilitating the smooth flow of
imports, thereby securing the delivery of materials to factories,
safeguarding customs duty and tax receipts, preventing
underinvoicing and manipulation in the shipment of imports and
fostering healthy competition between companies.

Relaunching a preshipment inspection system would not be so
difficult now that the government-owned surveyor company, PT
Sucofindo, has had decades of experience and has gained a good
international reputation in commodity inspection services.
Moreover, importers have said they are willing to bear the cost
of inspection to secure on-time delivery of imports and create
certainty in the determination and payment of customs duties.