…Misclassification in duty code responsible – Chairman, Committee on Trade Malpractices
The Galvanized Iron and Steel Manufacturers Association (GISMA), an arm of Manufacturers Association of Nigeria (MAN) has raised alarm over what it described as intractable smuggling of galvanized Iron and Steel into the country, saying that a cartel of economic saboteurs shortchange Federal government of N1bn weekly and N52bn annually.
But the Chairman, Presidential Committee on Trade Malpractices, Mallam Dahiru Ado-Kurawa said that the revenue loss was majorly as a result of misclassification of galvanised roofing sheet in duty code as other products.
In a press conference yesterday in Abuja, GISMA Spokesperson, Bello Mohammed who was represented by GISMA consultant, Obiora Ifoh disclosed that the unabated smuggling of steel products into the country is inhibiting the efforts of the federal government under President Muhammadu Buhari to grow Nigeria’s economy. He said government has been battling with this dismal economic sabotage which may lead to the collapse of up to 60 per cent of companies in the Iron and Steel sector, adding that if the sabotage is unchecked, it may result to a mass Iay-off of more than 50,000 direct employees in the sector.
GISMA pointed out that pre-shipment ensures that goods imported into the country conform with the declarations on the shipping documents, saying that importers still pay one percent sum of imported goods for pre-shipment inspection.
According to GISMA, “There is a cartel of economic saboteurs who import huge volume of containers every week valued at about USD5million which were never captured under the current HS code 7210.30.00.00 7210.50.00.00 of Nigerian Customs Service portal, making the Federal Government of Nigeria to lose an estimated revenue of about N1 billion on weekly basis (N52bn annually) on these smuggled items due to the neglect of pre-inspection of any container coming into the country which was hither-to the practice in Nigeria.
“Abandonment of pre-inspection of goods at the point of entry has created leeway for smugglers to flood the Nigerian markets with substandard products, including steel products. It has also made the nation’s borders and seaports porous, leading to influx of illegal arms and explosives into the country. Such a development is inimical to national economic development and national security. It appeared that government security and revenue generating agencies have been either overwhelmed or ignorant of the nefarious activities of the smugglers.
“The World Trade Organization is of the view that pre-shipment inspection is very important because It will help to safeguard national financial interest as it will prevent Customs duty evasion, Capital flight, and commercial fraud.”
GISMA pointed out that pre-shipment inspection was formerly observed in Nigeria but was suspended in 2006 to give way to destination inspection, noting that the Chairman, Senate Committee on Customs Senator Hope Uzodinma sponsored Customs and Exercise Management Act to National Assembly in 2016 for the reintroduction of pre-shipment inspection but wondered why government still collects one percent tax for pre-shipment inspection without carrying out the activities.
“The amendment bill to reintroduce pre-shipment inspection was passed and assented by President Muhammadu Buhari on June 2017. According to Clause 42 of CEMA 2017 amended, the Ministry of Finance has the duty to present the reintroduction of the pre-shipment inspection to the president for ratification. After the President’s ratification, the Nigeria Customs and Excise Commission will set up the process of establishing the pre-shipment agencies and apparatus.
“Pre-shipment inspection is expected to improve government revenue and boost the productivity of the Nigerian Customs. It will not cancel the capacity of energizing the Nigeria Customs. it is also important to note that all importers in the country have been paying the mandatory 1% C188, so the cost of setting up pre-shipment inspection mechanism is not burdensome to Nigeria. Since pre-inspection was suspended in Nigeria and importers have been paying 1% C183, where has the revenue been going?
“It is the opinion of GISMA that cancellation of Pre-shipment Inspection at all ports of shipment created a loop-hole for the smugglers because no authorized agency is checking declaration document (Form M) of goods coming into Nigeria during containers’ stuffing” Mohammed said.
He further pointed out that Port Harcourt One and Calabar ports have become the greatest outlets for smugglers in galvanized iron and Steel products in the country saying that the thickness and coating quality of all the smuggled roofing sheets are very much below the standard specified by Standards Organization of Nigeria (SON) for the Nigerian manufacturers, thereby short changing the Nigerian users as the imported products are less durable and of less quality.
But in his reaction, Chairman, Presidential Committee on Trade Malpractices, Mallam Dahiru Ado-Kurawa said that the upsurge in smuggling of galvanized Iron and Steel products were seasonal and often tied to international prizing and domestic fiscal policies.
Addressing the media, he said, “What we have come across recently, is that there is misclassification of galvanized roofing sheet in terms of duty code. That is a very technical way of smuggling and quite difficult to proof unless some serious effort is being employed by the already over-stretched Nigerian Customs Service.
“When I say misclassification, the complaint is that roofing sheets are being imported and they are classified as other products for the purpose of duty payment. Every single product that is imported into the country has a HS code: and it is based on that HS Code that the duty rate will be applied. So if you import galvanised roofing sheet and you have, for instance, classified it as machinery. The duty that you will be charged on paper because most of these issues are first of all done on paper before the physical examination.
“So if you now classify galvanize roofing sheet as used machinery which is what we hear is being the case, you will be charged custom duty for used machinery based on the code for used machinery thereby evading payment for the full duty based on the code for galvanized roofing sheet. The only way you will know or police such is 100 per cent physical inspection for every product classified as used machinery. So if galvanized roofing are coming in as machinery, it means unfortunately, the agent or the officer entrusted upon examining the product is definitely being funny or fraudulent because if you see galvanized roofing sheets, they do not look as machinery.
“So if an officer now inspect a container containing machinery and it actually galvanized roofing sheets and he passes it as machinery, it is very difficult for anybody else other than the officer that has made that physical examination, it makes it difficult for anyone to determine if it was galvanized roofing sheets or machinery. The interested party, the stakeholders, the manufacturers of the galvanized roofing sheets are very much in the business, they are in the market and they are in the ports. They import machinery, the keep track of products and their competitors, they are in a very good position to know the kind of malpractice that had become rampant to the extent that today, they have that major concern that there is that misclassification”.
He added that the challenge of smuggling is not limited to galvanized Iron and steel alone but also many other products like rice.
Reacting to the allegations that Onne, Calabar and Port Harcourt ports and free trade zones have become transit routes for the smuggling of Steel products, he answered:
“Free Trade Zones were institute to cater for companies that will import raw materials and make finished products for exports. That is why it is called the Free Trade Zone. So when you do import your raw materials into the Free Trade Zones, you do not pay duties to Nigerian Customs. But the raw materials and the finished products are supposed to be so confined to those Free Trade Zones. Over time, regulation was tweaked a little bit that some of the goods can come into the Nigerian Customs’ territory but you have to pay the full duty.
“Regardless of whether it is a port or whether it is an inland container, terminal or even whether it is the government designated Free Trade Zone, the rules are the same. It means that particular territory in abstract from is outside Nigeria, so goods can come in without paying duty into that territory, whether it is a man-made port, Free Trade Zone, Inland; the rules are the same. But when goods go outside that territory into Nigerian Customs territory, the duty must be paid” he said.