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.