Crooked importers are customs service stooges
The Indonesian Importers Association (Ginsi), which claims around 3,300 members across the country, is the most vocal critic of the customs service for its miserable failure to curb smuggling. Ginsi chairman Amirudin Saud shared his views about the government's decision to set up an interministerial antismuggling team and about customs service problems in an interview with The Jakarta Post's Vincent Lingga.
Question: How do you view the Cabinet's decision late last month to set up an interministerial team to combat smuggling that will also include the National Police?
Answer: I think the team would not be effective because the main problem is not physical but rather administrative smuggling, whereby crooked importers collude with customs officials to underinvoice their import prices, thereby slashing their duties and taxes, or customs officers lack the technical competence to assess real import prices. The police are certainly not trained to assess customs duties. So the root problem is mentality or the high venality of customs officials. I am even afraid that the customs service would simply use the team to validate or endorse whatever decisions it would take.
Q: Doesn't the Customs Law stipulate that the basis for valuation of customs duties is the import transaction value?
A: You are right. The Geneva-based World Trade Organization also stipulates such a provision. But that does not mean that importers are free to declare any value they choose, nor is the customs service relieved of the responsibility to determine import prices on a shipment-by-shipment basis. Professional customs valuation is still needed, especially when importers can easily manipulate their invoices in cooperation with companies overseas.
This is the main reason why we have strongly urged President Megawati Soekarnoputri to take contingency measures to reintroduce a preshipment inspection of imports (PSI) as Soeharto boldly did in 1985. Many industries that are our export leaders have been crying out over unfair competition from smuggled or underinvoiced imports.
Q: But how would preshipment inspection help reform the allegedly crooked mentality of customs officials?
A: No, PSI would not directly help reform the customs service. Yet we need PSI right now as many industries are dying. People tend to see the impact of smuggling or underinvoicing only in terms of the loss of state revenues from import duties, value- added tax and income tax. The most damaging effect is the unfair competition imposed on our manufacturing industries. The reform of the customs service, like the development of good governance in the public sector, will take more than five years. We cannot wait that long.
The Cabinet's decision on the antismuggling team is a magnanimous acknowledgement that the customs service has miserably failed to reform itself over the past five years after it regained its import inspection authority in April, 1997 simultaneously with the termination of the PSI system. Then by all means, let the duty valuation be given to a third party under PSI until the customs service completely reforms its organization and mentality.
Don't forget, besides its devastating impact on domestic industries, state revenue losses caused by underinvoicing of imports are also huge. We estimate them at Rp 33.3 trillion (US$3.1 billion) in 1998, Rp 27.4 trillion in 1999, Rp 37.1 trillion in 2000 and Rp 34.9 trillion in 2001. The University of Indonesia estimated that loss at about $610 million in 2000 alone.
Q: Why do you put the blame entirely on customs officials for underinvoicing? Shouldn't crooked importers, who may also belong to your association, should also be held responsible for that collusion?
A: That is entirely nonsense. I have always asked customs officials to notify me on what they call bogus importing companies with unknown addresses so that I can deal with them myself. But the customs service has never come up with a clear reply. Why? Because what they call crooked importers are really their stooges involved in the contraband trade. Problems such as the existence of bogus importing companies never occurred under the PSI system in 1985-1997.
Moreover, retired senior customs officials often are engaged in forwarding services. Why don't you investigate, for example, who owns or manages PT Swakarsa Bhakti Mandiri, a major forwarding company?
Customs and duties director general Permana Agung claims there are more than 30 state and private institutions involved at seaports so the customs service should not be held solely responsible for things that go wrong with imports or exports.
That is another big nonsense. True, there are many institutions engaged at ports but when it comes to the clearance of goods from ports it rests primarily with the customs authority. The port administrator cannot release goods from the port without the prior approval of customs.
Permana's statement late last month at the Jakarta port of Tanjung Priok that the port administrator had released two luxury cars from the port without clearance from the local customs service was strange and entirely questionable. How could imports or exports get out of the port terminal without clearance from the customs service? If such a thing did happen, the only explanation is that some customs officials colluded to make it possible.
Q: Some industrialists claim that smuggling has also been rampant through the duty rebate system for the importation of inputs for export-oriented factories, after the customs service took over the export inspection service from state-owned PT Sucofindo last August. How could that happen?
A: Export-oriented companies can get reimbursement of the duties paid on basic materials imported for processing into export goods. So, for example, a garment exporter can import fabric duty-free if it can be proved that the fabric will subsequently be processed into garments for export.
The problem is that, after the customs service took over the inspection of exports from Sucofindo, which had done the job professionally for more than a decade, there has been as yet no adequate technical capacity at the customs service to verify whether the volume of duty-free materials imported by export companies is really used wholly for producing goods for export.
Specific skills are needed to determine the coefficient of inputs into final products, and there are numerous industrial products that have to be verified. Without verification competence, quite apart from collusion, a factory can import basic materials duty-free to a much greater extent than it actually needs for production. It can then sell the balance to the domestic market.