Govt loses US$3.8b from import under-invoicing

The Jakarta Post, Jakarta

The Indonesian Importers Association (Ginsi) estimated on Thursday that the government has been losing at least Rp 40 trillion (US$3.8 billion) a year in revenue from import duty, value added tax (VAT) and income tax due to the widespread practice of under-invoicing import prices.

Still more damaging is the market distortion caused by under- invoiced imports and unfair competition imposed on Indonesian products, the association's chairman, Amirudin Saud, said, when he released the results of an import data investigation conducted by his organization.

Using data from the Central Bureau of Statistics and revenue figures from the state budget, Amirudin said the government should have collected Rp 52.7 trillion from import duties, VAT and income tax from non-oil imports in 1998, Rp 43.4 trillion in 1999 and Rp 57 trillion in 2000.

"However, actual state revenue amounted to just Rp 2.3 trillion in 1998, Rp 4.1 trillion in 1999 and Rp 3.4 trillion in 2000," he added.

Amirudin said his estimates of the revenue losses were based on an average import tariff of 10 percent, 10 percent VAT and 2.5 percent income tax on non-oil imports valued at Rp 234.5 trillion ($24.6 billion) in 1998 (Rp 9,500 to the dollar), Rp 193 trillion ($20.3 billion) in 1999 and Rp 253.5 trillion ($26.6 billion) in 2000.

According to the study, actual state revenues from imports should amount to at least 22.5 percent of the total import value.

"Even though more than 75 percent of our imports consist of industrial raw materials that are subject to zero or very low tariffs, more than 5,345 categories of imported goods, or 78 percent of the total number of tariff classifications listed in the 2001 Indonesian Import Tariff Book, are still subject to import tariffs ranging from 5 percent to 20 percent," he pointed out.

"Under-invoicing on such a scale could not have occurred without collusion between importers and customs officials," Amirudin alleged.

He acknowledged, though, that part of the problem should be blamed on the 1985 Customs Law, which applies a self-assessment system, meaning that customs officers are required to accept whatever prices are submitted by importers as long as they are validated by legitimate sales/import contracts.

"This system has often been abused by importers who ship their imports in from Hong Kong and Singapore in collusion with customs officials," he added.

The government urgently need to reapply the pre-shipment inspection system for non-oil imports, like what was in effect from 1985 to 1995, at least at selected ports of origin, Amirudin added.

The conclusion of the study validates the findings made earlier this year by a World Bank-sponsored diagnoses on corruption in Indonesia that the customs service was one of the most corrupt public institution, alongside the traffic police and judiciary.

The customs service performance at detecting the under- invoicing of imports and outright smuggling has been so poor that an increasing number of businesspeople have urged the government to strengthen the customs and excise duty directorate general with an independent import inspection mechanism.

The corruption-infested customs service was stripped of its import inspection authority in 1985 but it regained that authority in 1995 under a new customs law.

Ade Sudradjat, secretary general of the West Java Textile and Garment Association, disclosed recently that every month almost 1,500 containers of textiles from China, Vietnam and South Korea were being smuggled into Indonesia through Surabaya's Tanjung Perak port and Jakarta's Tanjung Priok port.

This smuggling, Ade added, has adversely affected domestic textile companies, particularly because their exports have already been hit badly due to the gloomy outlook of the world economy.