Bangladesh Customs has been requiring importers to pay extra tax on paper purchased from India after receiving a letter from Bangladesh Paper Mills Association (BPMA), which made false allegations that paper importers were faking invoice documents.
The Customs started imposing the additional tax even though an international pre-shipment inspecting company had reported twice that there was no basis to the allegation.
Importers have now significantly reduced purchasing cheap paper from India. This, combined with the local manufacturers' decision to sell their paper at a higher price, appears to be behind the 20 percent increase in the cost of paper for ordinary consumers.
In a surprising twist, The Daily Star has found that the person making the allegations on behalf of BPMA was not actually the chair of the association as he claimed to be in the letter to the Customs commissioner.
Mustafa Kamal Mohiuddin, president of Bangladesh Development Company and an executive of a Bashundhara Group company, was simply a convener of one of BPMA sub-committees. Minutes of a BPMA meeting held in January 2009 also show that the phone number given in the letter was not an official telephone number.
This inappropriate business influence over Customs' revenue collection started in June last year when Bangladeshi importer Sanjana Printers beat the Bashundhara company Shahjalal Newsprint Paper Mill in an open tender for supplying paper for the printing of covers of national textbooks for schools. Following its win, Sanjana Printers arranged to buy the paper from large Indian manufacturer Khanna Paper Mills.
As is a common practice in Bangladesh for all taxable items to be imported, an independent pre-shipment inspection (PSI) was undertaken to determine the actual price for the book-cover paper and ensure that Sanjana Printers was not trying to evade tax. The assessment followed a procedure laid down by the World Trade Organisation and comprised a detailed analysis of raw materials and other costs necessary to manufacture the paper.
International company SGS performed the inspection of the import through the Benapole land port.
On September 15, SGS sent a "clean report of findings" to Bangladesh Customs, which concluded that the importer's claim of paying $410 per tonne of paper was correct. SGS only added $5 to reflect insurance and freight costs. This valuation of $415 per tonne would have required Sanjana Printers to pay Tk 1.42 crore in tax.
However, three days later, Mustafa Kamal Mohiuddin, signing himself as the BPMA chairman, wrote to Customs Commissioner Abdul Mannan, alleging that "corrupt" importers were falsifying about what they paid for importing paper "depriving the government of a huge amount of revenue". He also alleged that the importers were smuggling out a "huge amount of under-invoiced foreign currency through Hundi".
The BPMA letter argued that similar paper imported through Chittagong was priced at $1,000.
The Daily Star has found that the letter was sent without the agreement of any of the principal members of the BPMA although they do agree with the allegations.
Md Selimuddin, financial adviser of TK Group, the biggest paper manufacturer in Bangladesh, told The Daily Star that they did not know that this letter was being sent. Capital Group, the third largest manufacturer, also confirmed that it had not been informed about the letter.
The Benapole Customs Assessment Committee assumed that this was a genuine letter from BPMA and decided to act upon it. It requested SGS to reconsider its assessment of the price of the imported paper.
SGS then undertook a complete review of its assessment, looking again at the manufacturing cost data. Three days later, SGS wrote to the Customs commissioner confirming that Sanjana Printers' pricing was done correctly. SGS explained that Khanna Paper Mills was a large scale manufacturing plant using cheap recycled waste as a raw material and this was the reason why paper imported from India was cheaper than that of Indonesia. It added that crude price comparison between two countries is a "complete violation" of the principles of import valuation.
However, although the Customs had no actual evidence that Sanjana Printers was under-invoicing, it rejected the advice of SGS. It informed the importer that the tax would be assessed on the basis of a payment of $700 per tonne of paper to the Indian manufacturer instead of $415. Such a valuation would require the importer to pay close to an additional Tk 1 crore in tax, almost doubling its liability. Sanjana Printers was incensed.
In normal circumstances, Sanjana Printers would have had little choice but to pay. But since the book-cover paper was urgently required for the production of school textbooks, the importer had some leverage and decided it would refuse to pay the additional levied tax. It hoped that the National Curriculum and Textbook Board (NCTB) would pressure Customs to reduce the valuation.
Indeed, NCTB Chairman Prof Kamaluddin, Education Secretary Syed Ataur Rahman and lawmaker Mirza Azam, member of the standing committee on education ministry, all contacted the Customs and requested it to reduce the valuation.
After discussion, it was agreed that the Customs would assess the tax on the basis of $500 per tonne. This meant that Sanjana Printers still had to pay Tk 27.5 lakh more in tax than required--effectively a 20 percent increase.
Whilst the importer agreed to pay the money, it did so on the understanding that it would appeal against the decision.
The Customs had been valuing all similar paper imported from India at this increased level since late September.
The decrease in imports that resulted from this provided an opportunity for local manufacturers to raise the prices of their paper.
The Daily Star found that the price of paper had increased by about 20 percent a ream at New Market. A 56gsm paper, which sold at Tk 260 per ream a month ago, now costs Tk 320. The local manufacturers, however, blame the hike on the increased price of pulp on international market.
Two weeks ago, Sanjana Printers won its appeal against the Customs commissioner's decision to increase the tax. At no point in the review hearing did Customs provide any evidence that under-invoicing had taken place, nor did it repeat the allegation. Instead, the Customs tried to justify its own valuation on the basis of the level of profit it thought the importer should gain rather than the actual price paid for the goods.
In its decision, the review committee stated that nowhere the law states that the profit of the importer can be fixed at 12.5 percent as claimed by the Customs. It upheld the SGS valuation and ordered the Customs to repay the additional tax.
Talking to The Daily Star, Customs Commissioner Abdul Mannan admitted that Customs had "fixed the assessment at $700 considering the rate of other countries and the application from BPMA". He, however, said he had not personally seen the SGS report at the time of making this assessment.
Despite the review committee's ruling, and having now seen the SGS report, he said he was still "planning to issue a show-cause notice on the PSI company asking how they could give such a low valuation".
The joint commissioner of Customs also told The Daily Star that it was planning to appeal against the review hearing's decision.
This disclosure of inappropriate influence over Customs' decisions comes just as the five-year contract between the government and four PSI companies, including SGS, are due to come to an end. The government has an option to hand over these functions next month to the Customs commissioner.
Officials of the Federation of Bangladesh Chambers of Commerce and Industry believe the Customs must not be given this role.
The attempt by Customs to extract money from Sanjana Printers illustrates why "over 90 percent businessmen in the country want involvement of PSI companies like SGS", Abul Kashem Ahmed, first vice-president of FBCCI, told The Daily Star.
"This case reflects how Customs harasses importers on the say-so of someone or the other," said another FBCCI official, requesting anonymity.
However, the role of PSI companies continues to remain contentious. In March 2008, the government cancelled the appointment of PSI company Cotecna Inspection SA over allegations centring import of sports utility vehicles although the company continues to assert that its valuations were correct. Its appeal against the cancellation is pending with the High Court.
Mustafa Kamal Mohiuddin stood by the allegations he raised. He said there was a meeting of the BPMA where association members showed documents indicating that importers were using "manipulated invoices" based on which they had sent the complaints in writing. But he could not specify when the meeting took place.
Mohiuddin said he had informed all major paper manufacturers prior to sending out the letter, and that it was "not sent in the interest of Shahjalal or any other particular paper mill, rather in the interest of the whole paper manufacturing industry".
Rezaul Islam, executive director of Bangladesh Development Company, who had earlier spoken to The Daily Star on Mohiuddin's behalf, said, "Many Indian exporters live in Bangladesh and take payments half in cash and half through invoices." He said price of paper pulp itself is more than $740, so it is impossible that the invoice can be less than $1,000.
SGS contests this claim, saying it has the invoice and transaction documents that show the paper was made from much cheaper recycled waste material. Sanjana Printers specialises in using recycled waste and the cost of waste paper is less than $200 per tonne.
Mohiuddin admitted that he is not the chair of BPMA but "was the chairman of BPMA's executive committee". This explanation conflicts with what Rezaul Islam had earlier argued--that Mohiuddin was made the BPMA chairman at the beginning of 2007 by a special order of the then chairman Ahmed Akbar Sobhan.
Source : thedailystar.net