Reforming customs service

Reforming customs service

Our front-page investigative story on the customs service on
Monday serves only to validate what businesspeople have been
complaining about over the last few years and to confirm the
findings of a survey of public institutions during the period
October 2000 to March 2001. It was sponsored by several
multilateral agencies and ranked the customs directorate general
as one of the most corrupt offices in Indonesia.

The extensive web of corruption and collusion was also
revealed by research carried out last year by the Economic and
Social Research Institute of the University of Indonesia and a
separate study by the Indonesian Importers Association. Both
studies estimated state losses from under-invoicing of import
prices alone at US$1.2 billion to $2 billion per year.

The Association of Sugarcane Farmers in Central and East Java
recently urged the attorney general to investigate Director
General of Customs and Excise Permana Agung for alleged collusion
between customs officials and importers to allow sugar imports to
enter the domestic market without properly paying import tariffs.
The farmers have even sued the director general through the State
Administrative Court on charges of allowing sugar imports to kill
the domestic sugar industry.

Yet the government has not yet taken any concrete measures to
address the problems. The Cabinet apparently did not see the
issue as severe enough to deserve urgent action, seemingly
resigned to accepting that the customs problems are simply the
reflection of the generally low level of tax morality within the
country.

Last week, Permana Agung told a press conference that the
government and the International Monetary Fund had agreed on a
17-point reform of the customs service, which would be
implemented next year. He did not elaborate on the reform
measures, only saying that a steering committee would be set up
to formulate technical details of the program and an advisory
committee would be formed to monitor and advise on the reform
implementation.

It is imperative for the government to realize that even
though the customs issue appears to be simply a commonplace
feature within a bureaucracy that has been perceived as one of
the most corrupt in the world, the impact of a corrupt customs
service on the economy is much more devastating than, say,
malfeasance at the tax office.

The most damaging effect of malfeasance within the tax service
is loss of state revenue, as the government receives much less
than it is due from taxpayers. But corruption within the customs
service inflicts far-reaching damage on the economy. Violations
of customs rules, besides causing revenue losses, create
distortions within the domestic market because foreign goods,
which pay much less duty and taxes than are mandated by law, pose
unfair competition on domestic products, similar to the market
disruption the sugarcane farmers and other industrial
associations have been complaining about.

No trade policy instruments will be effective, however well
designed they may be, if the customs service, which is
responsible for guarding the gateways (airports and seaports) to
the country, remains as highly venal and technically incompetent
as it is now. There will never be fair trade without an
efficient, clean customs service.

The service plays a vital role not only in preventing under-
invoicing but also in facilitating the smooth flow of imports,
which is vital to the domestic manufacturing industry due to its
heavy dependence on imported materials and components.

The government, therefore, should place overall reform of the
customs service at the top of its priorities, especially in view
of the forthcoming implementation of the ASEAN Free Trade Area in
January, whereby import tariffs for most manufactured good with
at least 40 percent ASEAN content will be cut to a range of zero
percent to 5 percent. The domestic market would be flooded by
imports from other ASEAN countries if importers could collude
with customs officials to circumvent the minimum 40 percent ASEAN
content rule.

True, 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 manufacturers and
farmers cannot afford to wait that long.

The government needs to emulate the bold measures taken by
then president Soeharto in 1985, when he hired an independent
survey company to assist the customs service in its inspection of
imports at ports of loading (at countries of origin).

Such bold measures seem essential now to supplement gradual
reform measures within the general campaign to develop good
governance. Most important too is that such bold, contingency
measures will simultaneously address the problems of corruption
and technical incompetence within the customs service, expedite
import flows and ensure fair trade.