17 June 2018

Zimbabwe: Porous Borders - How The Country Loses Millions to Smuggling Syndicates

analysis

THE government could be losing millions of dollars in revenue via its north-eastern port of entry at Forbes Border Post due to under-declaration and false classification of goods by importers to evade paying the correct taxes as corruption takes its toll, border officials, clearing agents and others have said

With companies struggling to remain afloat due to the economic problems, government now relies on tax heads such as excise duty and value-added tax (VAT) to meet its revenue targets.

Under-declaration of goods is whereby importers misrepresent the quantity of goods they are bringing into the country in a bid to avoid paying the correct taxes while, on the other hand, false classification of goods involves a situation whereby importers present false goods to the tax officers for purposes of evading paying the correct taxes.

Thousands of containers carrying imported goods, especially from China, are coming into the country on a monthly basis.

Zimbabwe has instituted strict control measures on certain goods such as furniture, clothing, plastic and rubber products, blankets, footwear, food and others, by introducing permits as a prerequisite before importation as well as putting other additional payments to restrict importation.

This was done to protect the local industry under siege from cheap quality goods as well as shielding local industry from unfair competition from goods imported from countries like China.

But for a country with one of the highest corruption levels and unemployment rates, treasury could be prejudiced of millions of dollars through corrupt activities at the border posts.

Investigations by The Standard showed that even though the government has introduced protectionist measures to shield local industry and widen the revenue inflows, several goods are being smuggled into the country.

Just last month, the Zimbabwe Revenue Authority [Zimra] sent several employees in its finance department on forced leave after intercepting a fraudulent attempt to transfer funds from the authority's fiscal department.

Two years ago, the government passed a regulation -- (Statutory Instrument [SI] 64 of 2016) -- whose objective is to boost domestic production by protecting local industries from unfair competition from foreign firms.

The SI resulted in the removal of 43 products from the Open General Import Licence.

Most of these products invite a duty of 40% and varying additional costs charged per item.

For example, furniture has 40% duty and requires a permit, toys and tricycles, footwear 40% and $1 per pair.

The Industry and Commerce ministry introduced SI 19 of 2016 which prohibits the importation of blankets and polyknitted fabric, among others, without getting an import licence first and introduced 40% duty and an additional $2,50 per kg on these items in a bid to protect local industry.

This publication gathered that there are many tricks being used to prejudice the country mainly with the connivance of clearing agents, unscrupulous Zimra officials, importers and law enforcement agents.

"The government put in place a structure that discourages the importation of various goods, but that on its own is not deterrent enough because those measures could easily be bent at any point," said a clearing agent who refused to be named for professional reasons.

"This also involves big companies that are being allowed to do business in the country.

"For example, there are companies which were given licences to mine resources in the country and when importing their capital equipment, they add on other goods, which are not related to mining.

"These goods normally demand permits but on paper, only the mining equipment that attracts 5% duty will be declared.

"We have had several cases where containers with suspicious goods are allowed to get into the country without a red flag.

"In cases where authorities demand to know, they are easily silenced by either claiming there are senior politicians involved in the importation of goods or by bribing the authorities.

"Either way, goods are coming into the country undeclared," the agent said.

On paper, there are many processes involved when one is importing goods.

Although these processes seem watertight, importers seem to find a way to evade duty.

Although there are many ways of importing goods, Zimbabwe mostly relies on Cost Insurance Freight (CIF) and Free on Board Freight (FOB).

CIF is a situation whereby the seller is responsible for shipment of the consignment and delivers it at the preferred place for the importer, while FOB is when the transportation of goods and the insurances are met by the buyer.

When bringing in goods, there are mandatory charges like for sea freight, which is about $3 000, road freight ($1 000), insurance pegged at 1% of invoice value and part charges of $1 200 and these charges will be added on when calculating duty.

However, a lot of importers are importing goods under the pretext of using CIF yet they will be using FOB, and their duty will be lower at the border.

"A person imports goods on FOB but writes CIF and many others costs will not be included.

"Under CIF, there are lesser chances of scrutiny as compared to FOB and a lot of importers bringing expensive goods are using this kind of trick," said another agent at Forbes Border Post.

After realising that there was a lot of trickery on importation of goods and clearance at the border, the government enacted SI 9 of 2018 that stipulates that all goods must be pre-cleared and the pre-clearance manifest should be reported at least two hours before the goods arrive at the border.

In this regard, all details pertaining to the load, including the tariff, will be there and for goods that need permits, they must be provided ahead of time.

The manifest will include information such as truck details, container number, seal numbers, quantity, weight, description of goods, the consigner and the consignee, the clearing agent and the bill of entry.

The pre-clearance was initiated to ease logistical pressure at the customs (Zimra) yard.

According to Zimra officials, all the entries will be used in the customs computer system known as ASYCUDA, which will determine whether the container goes for physical examination or not.

This presents another opportunity for evading paying the correct duty.

Zimra has a depot, normally called GMS, which is just a few kilometres from the border where the physical examination is done to verify the quantity, the type of goods and valuation to see if they correspond to what is on the papers.

"For all the trucks that are accessed, the truck drivers will go to GMS for scanning and final release, but those that require physical examination will go directly to the examination bay.

"Depending on the volume, it will take an average of two to four days before the truck is released," an agent based at Forbes said.

"Those that fear to be exposed for under-declaration and false classification will then take the opportunity to negotiate and possibly bribe the authorities.

"In cases where they fail, Zimra confiscates the goods. In some cases the punishment will be payment of the full duty with a 100% fine with other additional penalties .

"However, some unscrupulous importers are not deterred since in most cases they have a pre-arranged settlement with their agents who will talk to Zimra to allow their containers safe passage."

At the GMS, drivers who spoke to The Standard acknowledged that sometimes they have problems with the law enforcers after being made to ferry goods that are not on the documents.

"It is true. in fact, in most cases containers from Chinese people are suspicious," said one truck driver.

"At times Indians and local businesspeople are falling into the trap.

"You will only realise that after you are instructed to go for physical examination.

"However, the agents will go all the way to negotiate and I think they are the ones that are instrumental in prejudicing the nation."

It also emerged that in some cases, people import fuel under the guise that it is in transit to neighbouring countries yet it would be destined for Zimbabwe.

The fuel will be offloaded in Zimbabwe and the tankers will be loaded with water.

"Several high-ranking officials, and politicians, are guilty of such crimes, but they use their muscle to get away with it.

"To be honest, Zimra officials have no power to stop this because of the people involved," a Zimra official who refused to be named said.

In the end, various goods deemed difficult to import have flooded the streets in many towns and cities and because they are cheap, people will prefer to buy them as opposed to those from shops that import their items above board.

Agents' side

Shipping Forwarding Agents' Association of Zimbabwe board member and chairperson of the training committee Assan Mtembo admitted that there were elements within their field that were facilitating prejudice of revenue in taxes.

"There are some unscrupulous importers, but the challenge is that the goods are loaded in China and the agent only receives documents and all the calculations and duty documentations done by the agent is based on the documentation as provided by the importer," he said.

"The importer can declare false goods and as an agent you won't be able to know the prices at which those goods were bought.

"What we do is to ask for all the documents and for every entry that is done though we are still limited because what we do is based on the importer's integrity.

"The goods that are problematic in many cases are those that have controls.

"On the part of agents, what we request is to have a regulatory body because currently we don't have one," he said, adding that those unscrupulous elements sometimes charged minimal fees to facilitate smuggling of goods.

He said as a body, they needed a regulatory body like any other professions such as law or health to ferret out malcontents.

Zimra response

Zimra acting head of corporate communication Taungana Ndoro confirmed that there were cases where importers tried to evade taxes, but said combating smuggling and evasion of duty were tasks requiring collective effort from all relevant stakeholders and the general citizenry.

"The number of seizures emanating both from physical and non-intrusive examinations shows that the authority is aware of duty evasion tendencies and has employed a cocktail of strategies to combat this problem," he said.

In 2017 alone, Zimra recorded 446 seizures. In the first quarter of 2018, 188 cases were recorded and 78 recorded so far in the second quarter.

According to Ndoro, some of the measures included scanning of all containerised cargo with the mobile scanner effective from February 16, 2018 and the scanning is done by independent members separate from local Zimra staff for separation of duties and control purposes and physical examination of cargo as determined through the ASYCUDA world risk engine.

Ndoro said physical examinations were not determined at the border, but through a centralised risk engine, removing officers' discretion to choose what they want to examine.

Other mechanisms include sealing of containerised cargo in transit and all fuel tankers in transit since September 2017 through the electronic cargo tracking system, escort of high-risk unsealable cargo in transit, post-clearance audits (PCA) -- done at inland stations by a dedicated PCA team at head office, mounting roadblocks conducted inland with assistance from the police and the army for goods that may have escaped the other controls, seizure and up to 300% penalties imposed on offenders, forfeiture of illegal or undeclared items to the State, prosecution of offenders and disposal of the contraband through rummage sales, destruction, informal tenders or appropriation to the State.

"These measures have been very effective noting the number of seizures due to undervaluation or false declarations or outright smuggling through illegal crossing points that have been affected as shown below," Ndoro said.

l This story was produced by The Standard. It was written as part of Wealth of Nations, a pan-African media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org

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