The Director General of Customs said falling commodity prices are making valuations difficult and has caused a never ending war between the Department of Customs and importers.

"Some commodity prices are difficult to valuate for taxation purposes because commodities from different countries are quoted in different prices and there is a never ending war with importers over this issue," Customs Director General Sarath Jayatilake told the Island Financial Review.

"For example, steel is imported from China, Dubai and UK and various prices are quoted, they are not uniform, making it very difficult for us to make valuations for the purpose of duties."

He said that even though some items were homogenous, prices at different commodity exchanges around the world vary.

Jayatilake said some importers were using this situation to undervalue such commodities. He said revenue collections had been effected as a result.

For 2008, Customs had been given a target of Rs. 345 billion to be collected as duties, cesses, excise taxes and other levies for 2008.

The target would amount to Rs. 281 billion for the first ten months of the year and the actual collected is Rs. 244 billion, which is Rs. 36 billion below target but a 14 percent increase from last year’s collection.

"Electrical items, computer parts and motor vehicle parts have been difficult to valuate as well, and this has created room for some officials to make arbitrary valuations," he said.

Importers are lobbying, albeit softly, for an advance ruling mechanism so that Customs could valuate consignments in advance. This is expected to prevent arbitrary valuations.

Jayatilake said that advance rulings can be given so that importers are not hassled when their consignments arrive.

"But this exercise is not effective because we find that importers give us limited information about their consignments and trap us into making lower valuations.

"We require reasonable evidence to suggest the import followed a normal commercial transaction process. But very often we are told that there is not even an invoice and that prices were agreed on over the phone," he said.

He went on to say that Customs officers are forced to make arbitrary decisions because consignments cannot be held for too long at the port of entry.

"An advance ruling mechanism won’t work because it is difficult under present conditions to valuate goods based on what little importers tell us."

"What people fail to appreciate is that besides valuating goods for the purpose of collecting duty and cesses, we also have to monitor the standards and safety requirements of all imports and prevent substandard or illegal goods from coming in to the country," Jayatilake said.

He acknowledged the importance of having an appellate body to address grievances of importers subjected to arbitrary valuations.

There are accusations from the industry that some Customs officers subject them to legal extortion and that even the Director General himself is powerless to overrule his subordinates.

These officers are alleged to openly solicit bribes in exchange for a speedier process.

"These accusations are made by those whose track records have proved to be bad, where they have tried to undervalue their consignments to avoid paying high duties," Jayatilake said.

"But the big time importers have no problems with us," he said.

The clearing and forwarding industry is calling for a Customs Ombudsman scheme to quell the seemingly inherent problems of corruption and bribery.

"It would be good if we can have such a scheme, but there is already a mechanism in place where the Minister can be approached to settle disputes. So if the mechanisms of how the Ombudsman scheme will work can be sorted out there should not be a problem," Jayatilake said.

A concept paper on re-structuring and reorganizing Sri Lanka Customs, prepared about four years ago, highlighted the need for an Ombudsman scheme but its recommendations went unheeded.

The paper said that internal appeal procedures are virtually non-existent partly due to corruption at the higher levels of the department and largely due to the reward system which gives officials a share of the penalties.

It said officers resent their decisions been overturned by superiors as it would deprive them of rewards.

"The Director General of Customs is more restrained than an outsider when dealing with his officers, particularly in light of the reward system. Customs officers have even taken the Director General to courts when their decisions have been overturned, depriving them of their rewards," it said.

The concept paper included several recommendations that included revising and rationalizing the Customs Law, creating a new tariff structure, new trade and investment laws, adopting trade facilitation mechanisms, automation of cargo clearance operations, establishing a customs training academy and a committee to give effect to these recommendations.

"Nothing has come out of this concept paper," its author, a retired Customs Director and former member of the World Customs Organisation Technical Committee, Elmo De Silva, told the Island Financial Review.