PAKISTAN CUSTOMS COMPUTERIZED SYSTEM
Pakistan has persistently one of the lowest Tax to GDP ratios in the world leading to insufficient revenue generation which always impeded government’s ability to make much needed investment in infrastructure, education, health, social sector, poverty alleviation and other sectors to develop the country. Realizing the magnitude of the issue, in 2000, the then government constituted a high powered task force to analyze the problem and suggest remedial action
The Task Force on Tax Administration identified the reasons of low tax collection and suggested reform and restructuring of FBR as the most critical national agenda and laid down a detailed blue print for the way forward. The recommendations of the Task Force were approved by the government and necessary funding for the initiative was sought from the IMF and the World Bank. In late 2001 the Tax Administration Reform Plan (TARP) was started.
Task Force highlighted a number of reasons for poor performance of Tax System and their key recommendation for overall overhauling of tax system was:
“A tax system, which has simpler laws and efficient procedures that promote self-assessment, reduce physical controls and creates reliance on audit and risk assessment. It emphasizes reduction of discretion and direct contact between tax collector and taxpayer.”
In order to achieve this, the Task Force recommended creation of an Information Management System with the following features:
- Full automation of the processes thereby reducing human interventions
- Repositioning of controls to where they are most effective without obstructing business and trade.
- Provisions of remote lodgment facilities (via a computer network), to enable the public interact with the organization from their offices, removed from face to face interactions.
- Complete paperless and cashless processes.
- Privatization of certain operations.
- Electronic linkage of all the participating agencies in the system.
- Use of clear and simple rules.
(I) WHY CHANGE?
The study of Task Force took detailed account of rampant corruption, inefficiencies of Customs Department and prevalent faulty procedures and identified the factors hampering efficient and optimal collection of Customs Duty. The details of reasons necessitated revamping old customs system are enumerated below;
(i) The Customs business processes were cumbersome. They involve numerous steps, handling officials, signatures and verifications, making the processes tedious and irritating. The compliance cost was high, estimated at 10% of the value of consignments. These processes had the following characteristics:
- The manual system, besides being tedious and time consuming, used to lead itself to collusive malpractice.
- Clearing agents used to carry documents from desk to desk for completing various steps.
- Work methods and processes allowed excessive interface between customs employees and clearing agents/clients.
- A large number of customs officials were involved in process fulfillment.
- There were no time standards for completing various processes, which used to cause inordinate delays and addition to compliance cost.
- Absence of standard operating procedures and weak post-audit provided opportunities for misuse of discretion at functional levels.
- There was no negative profiling for identifying high-risk clients for targeted
- Dispute resolution was slow and cumbersome. Stakeholders were generally dissatisfied with the existing system to redress genuine grievances arising out of the arbitrary exercise of authority and delays in decision-making, which used to add to their financial costs.
- Performance of critical functions, such as escorting of bonded warehouse goods and custody of important documents by low paid functionaries used to lead to manipulation of documents with substantial financial risks.
- There was no uniformity in business processes on countrywide basis. Significant variations in procedures at various customs stations used to lead to inequitable treatment of the clients and potential revenue leakage.
(ii). The said manual business process environment necessitated an excessively larger staff in functional and support cadres. The support staff was mainly responsible for maintenance, storage and retrieval of manual records, anti-smuggling duties, escorting goods from the port to bonded warehouses and carrying out guard duties. The presence of such a large number of low paid employees resulted in demand for ‘speed money’ for moving documents from one desk to another or retrieval of any document from congested and chaotic record rooms.
(iii). Customs Collectorates had a tall hierarchy. Quality of human resources at functional level was poor ignorant of latest developments in Customs and were almost alien to Information Technology.
(iv). Customs procedure were based on multiple checks and verifications of every transaction, hallmarks of a defensive and time-consuming system. These procedures were devised at a time when the volume of international trade and number of import and export transactions were small, import tariffs were prohibitively high and robust Information Technology especially, internet was not available.
(v). Due to foregoing, delays in clearance of cargo were inordinate and resultantly corruption was rampant. On average the customs clearance time was more than seven days and dwell time was more then ten days which was not only adding to the miseries of traders and the cost of doing business but elevated customs as one of the most corrupt department as per Transparency International.
(vi), WCO laid down new standards for customs and issued guidelines regarding best practices in customs. Pakistan being signatory of Revised Kyoto Convention was under obligation to revamp customs system to make to make tax collecting machinery efficient, transparent and corruption free.
(II) OBJECTIVES TO BE ACHIEVED
The Task Force suggested a number of steps to improve the present system with the ultimate objective of:
- Providing a well defined, clear and level playing field to all stakeholders
- Providing an efficient, cost effective and smooth transaction of business
- Ensuring that the due potential of the state’s revenue is realized
- Reducing significantly the possibility of any slippage, evasion or leakage
- Providing an efficient, cost effective mechanism for dispute resolution
(III) WAY FORWARD – MEASURES SUGGESTED
The Task Force inter alia suggested following Fundamental Measures:
- Business Process Re-engineering for improving business processes by deleting redundant steps in business processes, reducing document flow, relocating steps, and automating business processes.
- Replacement of manual system of operations to a fully automated and information based system which would reduce interface with taxpayers and curtail official discretion. The manual systems cannot cope with the current and future volume of operations. Introduction of a comprehensive system of profiling and risk management, and replacing the present system of positive profiling of reliable importers by a system of negative profiling would reduce potential revenue leakage and facilitate genuine imports/exports.
(IV) PAKISTAN CUSTOMS COMPUTERIZED SYSTEM(PaCCS)
The Customs component of the TARP initiative was called CARe (Customs Administration Reform) and was started in early 2002. One of the major components of CARe was “Pakistan Customs Computerized System” commonly known as PaCCS. To develop PaCCS a dedicated project team was put in place to drive the reform process, which essentially comprised of:
- Reengineering of business process
- Modernization of Customs laws and rules
- Design of an automated, web enabled, information management system
Since the CARe project was part of TARP, an IMF – World Bank Project, an international tender had to be floated under the World Bank rules and supervision for soliciting the most suitable vendor to build the software for the CARe project as per the FBR design. An Expression of Interest (EOI) and Request for Proposal (RFP) was floated in the national and international media by FBR in 2004. Around 50 national and international companies participated in the tendering and finally the consortium comprising of Public Warehousing Company (PWC) Kuwait, Microsoft and Accountancy Outsourcing Services (AOS) Lahore won the contract on the technical cum financial evaluation criteria of the World Bank, for having the highest quality and lowest cost. PRAL – a subsidiary private limited company of FBR however, did not bid in the tendering process.
A one year contract for the PaCCS Pilot project to the extent of Containerized cargo through the Karachi International Container Terminal (KICT) was awarded to the successful bidders for a total value of USD 200,000/-. The concept of the pilot project was to experiment with the new process flow and technology at a particular area for a fixed period and in case the new system proved itself to be adequate and efficient it would be gradually rolled out to the rest of the country through a separate, else it would be closed.
A written Requirement Specification Document (RSD) detailing all the functionalities, as required by the FBR for the pilot was provided to the vendors to code PaCCS. The Pilot system was built accordingly and formally started functioning from March 23, 2005.
(V) IMPACT OF IMPLEMENTING PACCS
(a) Reduction in Dwell Time and Customs Clearance Time, and Speedy Clearance of Cargo, – As a result of implementation of PaCCS the Dwell Time of PaCCS cargo dropped gradually to 2 to 3 days from over 10 days in the manual/semi automated old system commonly known as PRAL System / One Customs and Customs Clearance Time reduced to less than 24 hours as compared to more than 7 days in the old system. It saved importers from demurrages and unwarranted financial cost. The speedy clearances helped importers/traders/manufacturers to maintain just in time inventory instead of piling up unwarranted stocks.
Making a Presentation at the World Bank Trade Logistics Conference on 5 May 2008 His Excellency, Ambassador Dr. Manzoor Ahmad said,
“One electronic declaration has now replaced 26 clearance steps, 34 signatures and 62 verifications. As a result, over 70% of consignments are cleared within 1 hour, and the overall average clearance time has come down from several days to less than 8 hours. Only 4% of import and 2% of export consignment are now examined, down from a 100% previously. Rebate payments are made automatically without having to file a claim for them. Refunds now take less than 48 hours, compared to 90 days, as was the case previously. Since there is no contact between the tax payer and the tax collector, chances of malpractice or corruption are very remote.”
(b) Reduction in Corruption, – Since speed money is the most common and favored form of corruption, whereas under PaCCS the clearance speed is automatically very high the businesses have no interest in paying speed money. Further, Secured examination and assessment areas in PaCCS eliminated interaction between importers/exporters/clearing agents and customs officials to negotiate favors which first time in customs history in Pakistan created corruption free environment. As a result customs remarkably improved its position in the grading of Transparency International.
In his Report on PaCCS, Mr. Dietmar Jost – a German Customs officer, who has worked for 10 years at the World Customs Organization (WCO) at Brussels and is called the father of the WCO Data Model and is the leading international authority on Customs best practices and automation, and was engaged by FBR in 2006 to independently evaluate PaCCS,
“In my very intense discussions with the CARE project team at the Karachi Model Customs Collectorate, I experienced tremendous dedication from the project staff members to make a positive contribution to the country. This made me confident that there was a growing recognition that corruption was the root cause for slow economic and social development. The CARE project is the key to an honest, fair and transparent Customs service in Pakistan.”
(c) Single window and Paperless environment, – PaCCS created a web enabled environment where the Carrier Declarations, Goods Declarations, other documents, reviews, etc are filed over the web on PaCCS Portal and instead of running behind the papers from pillar to post all the informations are processed by the system and results are communicated electronically. This is virtually one window operation and first of its type in public sector organizations. The following stakeholders directly interact with PaCCS Portal:-
- Shipping Lines for purposes of vessel and manifest information.
- Terminal operators for arrival/ departure of vessel, load and discharge of cargo, examinations and releases.
- Importers and exporters for authorizing agents on their behalf, for self filing of Goods Declarations, reviews, refunds and any other activity as given in the Customs Act.
- All internal users of PaCCS, Appraisers, and examiners, AC / DC, Additional Collectors and Collectors all have there own User Ids and work directly in the system.
- All monitoring and auditing departments like Directorate General, Customs Intelligence and Directorate General, Post Clearance Audit.
- Banks for collection of duty, taxes, fines, penalties or any other levy.
- Various sections of the Federal Board of Revenue to directly feed in information regarding tariff, exemptions, duty rates, conditions of import and export etc.
- Other Collectorates all across Pakistan for purposes of information like warehouse licensing, Agents licensing, receipt and departure of cargo, maintenance of quotas, etc.
- Other Government departments like the State Bank of Pakistan, AGPR, and Statistical Bureau etc. for monitoring purposes as relevant.
(d) Level Playing Field and Transparency through Risk Management System: Through a comprehensive Risk Management System human intervention is reduced drastically. There is no whimsical pick and choose system in PaCCS. No importer/exporter is discriminated on the basis of name, item, volume of business, ctc. Every Goods Declaration has to pass through RMS and prove non risky for expeditious clearance directly from computerized system. In case it is hit by some risk it is declared risky and for detailed scrutiny is marked to one of the Appraisers randomly. As PaCCS provides full data backup to the Appraiser to ease decision making, the GDs are finalized speedily.
It may be appreciated that PaCCS has one of the most advanced risk management engine. In his Report on PaCCS, Mr. Dietmar Jost says,
“The risk management function in PACCS is very sophisticated and in accordance with accepted best practices such as the WCO Risk Management Guide. Trader profiles are updated automatically by the system on a daily basis.
(e) Compliance measurement: When information is available in electronic format, in systems that are end to end integrated, it is very easy to measure compliance over time, past contraventions, detections, undervaluation, comparison with like articles, risks associated with particular ports of shipments, suppliers, commodities, importers /exporters can be tabulated and the computers can be programmed to automatically detect consignments with higher risks.
(f) Cost and Ease of doing business: Under PaCCS, transparency ensures absence of un-receipted expenditures and the speedy clearance of cargo protect importers/exporters from demurrages, therefore the cost of doing business in PaCCS is lower than any manual or semi automated systems while the ease of doing business is also enhanced.
(g) Enhanced throughput of Ports, – With PaCCS in place, the phenomenon of choking of ports or shortage of space vanished. Due to automated clearance under PaCCS the ports were enabled to handle 3 to 4 times more cargo with the same storage capacity.
Pakistan Logistics Costs Study, World Bank April 2006 says,
“The faster throughput means substantial financial savings and for all import a faster throughput by 1 day is equivalent to USD 5.09 million lower financial costs in transit. This means that total implementation of the CARE system could give financial cost savings during transport (dead capital en route) in the amount of 40, 7 million US dollar (when reducing the throughput time from 11 to 3 days)”
“Customs has improved a lot and must be considered to be one of the leading edge government agencies as to successful implementation of trade facilitation measures.
It is positive to see that the Pakistan Customs follow the global trend of customs agencies becoming the frontrunners in supporting national trade and transport and acting like a facilitator”.
“The introduction of the CARE system set new standards for processing of customs work; the clients would like it to be extended to other locations, as it is only functioning at KICT. Clients do not use automated CARE system when shipments are from Port Qasim where CARE is not available. Some clients are considering moving to a transport line calling at Karachi Port in order to benefit from the faster Customs throughput!”
“In terms of trade facilitation and Customs control, the PACCS pilot project provides Pakistan with a very modern, web based IT system matching international standards. In comparison to the current procedure, PACCS has reduced Customs clearance times from days to hours. Also the overall port dwell time has been reduced significantly, since PACCS serves as a community system, connecting all relevant stakeholders and agencies thus improving the information flow and accelerating the decision making processes.”
“PACCS provides traders with an immediate release facility through pre-arrival/pre-departure reporting. In discussions with traders, one multinational company, which imports finished products as well as raw materials for production lines in Pakistan, explained that through the use of PACCS they were able to reduce inventories from 11 days in 1998 to just 4 days in 2005. Other companies also highlighted the very positive effects of PACCS on their business. Terminal operators informed that PACCS enabled the planning of major investments in the port infrastructure, since the processing speed of PACCS will allow bigger container ships (greater than 3500 TEUs) to call at Karachi. Representatives of port terminals where PACCS was not currently operating were requesting that PACCS was being rolled out immediately, because they saw themselves in a competitive disadvantage.”
(h) Detection of Cases: In PaCCS due to effective RMS the ratio of detection of cases is much more than One Customs where due to direct interaction between the internal and external stakeholders the contravention cases are settled “amicably”, therefore, corrupt customs officials are afraid of PaCCS and lobby against the system. PaCCS Pilot Project Evaluation report by Dietmar Jost WCO) 2006 says,
“During the first 11 months of the pilot project, over 212 contraventions have been detected, 182 alone through the selectivity module of PACCS. In comparison to this, the performance measurement study of the non-PACCS environment conducted by the World Bank in 2004 had measured “nil” contraventions over a period of two months. The advantage of risk-based selectivity over a 100 % inspection regime has been clearly demonstrated by PACCS.”
- WHY RESISTANCE TO PACCS AND ITS ROLL OUT?
Resistance to PaCCS essentially comes from a single source i.e. FBR (of course including Customs and PRAL having common vested interest). The reasons for resistance are essentially as given below. It is interesting to note that resistance to meaningful automation within FBR was already well known and documented much before the PaCCS project. During 2001 the Task Force on Tax Reforms had already brought the following to the notice of the government;
(a) Corruption and Collusion
“One of the key findings of the research is that the environment in which the tax administrators operate leads to corruption. This environment of cumbersome procedures, vast discretionary powers, poor monitoring and lax supervision coupled with almost zero accountability provides a fertile ground for rampant corruption”.
“Importers and customs officials are undeclared partners in many import transactions, e.g., auto parts. If 25,000 auto parts are imported only 10,000 are declared, thereby resulting in massive evasion of duty and loss to the exchequer. Examiners, appraising officers, ACs are all involved in this chain of corruption.”
“The solution to this problem is to completely reengineer the business processes with a view to minimize opportunities. Other consultants are providing detailed recommendations on these. However, we would like to suggest the following as guidelines.
- Minimize tax payers tax collectors interaction
- Simplify complex systems and rules
- Reduce Discretionary Powers
- Strengthen Monitoring and Accountability
- Increase Transparency”
Since PaCCS implements all of the recommendations of the Task Force it is intensely resisted by FBR and Customs from top to bottom.
There is organized corruption in Customs. Except a negligible number of senior officers all officers receive the share of booty collected by junior officers and pooled with nominated Principal Appraisers. The key to success to organized corruption is to arrange small groups headed by Principal Appraisers. Sometimes back, in PaCCS, the efforts were made to organize such groups but being an automated system it did not fetch required results. Therefore, the interesting lobby decided to work to dislodge PaCCS.
(b) Speed Money: In Report on Tax Reforms it is mentioned that,
“Within the tax administration, corruption takes the form of policy manipulation, whereby import duty structures are changed overnight by issuing SROs to favour a single industry or firm at the cost of others, collusion between the tax officials and interest groups, and extortion, which is made possible by the immense discretionary powers of the tax officials. The most common form of corruption in the tax administration, however, is speed money.”
Since speed money is the most common and favored form of corruption, and since under PaCCS the clearance speeds are automatically very high, the businesses have no interest in paying speed money.
(c) Accountability: Task Force on Tax Reforms says about the automated system that,
“The system will have the ability to maintain a complete trail of various transactions. In a manual system, it is much easy to manipulate the records or even to remove or destroy them with serious implications of revenue loss. An effective audit check in the proposed system will enhance the accountability of clients as well as of Customs employees.”
PaCCS maintains audit trail of every activity carried out by each role and as work on each transaction is completed, the system automatically moves to the next step. Electronic logs of each activity performed, the time taken for completion, by whom and from which location is maintained. PaCCS has complete performance measurement capability. Since all rules are built into the machine and are enforced by the machine, no rule can be relaxed or bypassed for anybody.
There are no paper files, the electronic files cannot be lost, torn, stolen and cannot disappear. The system has FIFO (First in First Out) in place. No file can move faster or be slowed down for any considerations of fear or favor. The system is completely impersonal and has built in work load balancers; no one is either overburdened or under worked. As soon as work is created it is routed to the relevant person on duty that has the least load. When work is assigned to an official, the identity of the client is concealed from the official and vice versa, neither the Customs official is aware of the identity of the importer nor does the importer have any knowledge of who to contact in Customs.
For the above reasons PaCCS is strongly resented in Customs and FBR and manual systems are preferred.
(d) Conflict of Interest:
One of the basic reasons for resistance to PaCCS by FBR is its inherent conflict of interest. FBR is owner of a private limited company called PRAL (Pakistan Revenue Automation Limited) Private Limited. Unfortunately, the company is not very efficient and cannot compete with others on merit; hence none of FBR’s projects are granted through open tender and fair competition as per government rules, instead all projects are just quietly given to PRAL. In case where FBR does not have a choice except to go through an open tendering process, like the World Bank projects, PRAL chooses not to participate in the tendering process but instead poses to be an integral part of FBR and becomes the regulator, monitor and technical expert. In its capacity as the regulator it never approves the work done by the bidder, once all work has been completed by the bidder and PRAL is fully aware of and trained on the technology, FBR terminates the bidder and transfers the work to PRAL.
Interestingly, none of PRAL’s projects were ever exposed to system audit to technically evaluate the efficacy of softwares. Despite the frequent frauds of billions of Rupees in STARR, STREAM, ONE CUSTOMS due to serious lacunas in softwares no inquiry was ever ordered to ascertain the inefficiencies and drawbacks of PRAL Systems and corruption and malpractices of PRAL management and employees.
Task Force on Tax Reforms rightly highlighted the issues relating to the relationship of FBR and PRAL,
“A well functioning information system will be the key stone of the function of CBR. CBR cannot, therefore, put itself in the hands of a monopoly provider of service without an adequate system of control, evaluation, rewards, penalties and choice of an alternate provider. CBR must therefore, have a department of information management headed by a member, responsible for a continuous review of information needs, contract management and constant review and evaluation of the contractor.
Chairman CBR should cease to be chairman PRAL and alternative arrangement for the operation of PRAL as a corporate entity must be designed. The majority of the Task Force agrees with this view.”
“The relationship between CBR and PRAL is symbiotic. There is no contract between the two, no agreed service standards; there are no performance criteria and no evaluation. There are no rewards or penalties for performance. For greater efficiency and control by CBR on the Management of its key processes, PRAL should be explicitly recognized as a contractor. CBR should enter into a contractual arrangement with PRAL defining its functions, performance expectations and standards, and evaluation criteria. There should be annual evaluations of PRAL’s performance reviewed by CBR’s Board and the Supervisory Council.”
Since PRAL is owned by FBR as such FBR and Customs officials are able to control all automation attempts to suit their own interest.
The vested interests are not confined only to the extent of hampering automation according to international standards and best practices which surely can eliminate corruption but reportedly the recruitments in PRAL are also not transparent. Safarish and nepotism prevails. The number of workforce in PRAL is about 1400 but except for the CEO or for some other posts, PRAL never advertised the vacancies and invited applications for recruitment; rather most of the recruitments are made either on the recommendations of FBR senior officials or by the senior management of PRAL without any merit.
PRAL is not bound to comply any government rules and regulations and FBR in the garb of PRAL also does the same. For example, It is astonishing that despite the fact that PRAL itself deals in software engineering, some of the softwares like Banxis, HRIS, etc. were developed by some other venders and that too without any tendering process.
From the foregoing it is evident that PRAL has monopolistic situation in nexus with FBR. The entry of any system developed without support/endorsement of PRAL poses a serious threat to the very existence of PRAL, therefore, it always conspire against any such move.
- RECENT DEVELOPMENTS
In March 2010, the FBR wrote a letter to M/S Agility to hand over the source code of PaCCS to them an quit. M/S Agility retaliated and gave two months notice to FBR that if they did not pay the balance amount of price of PaCCS and settle other related issues, they will close down the system without any further notice. As a result FBR ordered PRAL to develop a fully automated system for customs. The PRAL had already developed some clearance module based on PaCCS RSD which was in the phase of test run at Banazir International Airport, Islamabad. PRAL decided to expand that system by the name of Weboc using PaCCS RSD. WebOC was meant for selected big importers without any comprehensive RMS. However, till the dead line given by M/S Agility, PRAL failed to replicate PaCCS.
The news of closure of PaCCS created panic amongst importers/exporters because they did not want to go back to the old manual system of One Customs as the new system being developed by PRAL was meant only for a few hand picked people who also knew well the inefficiency and incapability of PRAL for developing an automated system and were not in favor of any new experience in the presence of time tested PaCCS. A number of trade bodies including Chambers of Commerce and Trade made representations to the concerned quarters for continuation of PaCCS.
PRAL failed to develop weboc and exhibit progress to the trade bodies. Anticipating the disaster in the absence of PaCCS a group of traders and clearing agents decided to approach directly to M/S Agility. The Board also approached M/S Agility on the same account as PRAL failed to deliver. On their request, M/S Agility extended the working of system for next 15 days i.e. 28th May, 2010. PRAL. In the meantime, importers/exporters and clearing agents were in total state of confusion and uncertainty as new system was not exposed to them whereas customs authorities were assuring them that well before the deadline new system will be launched.
However, the PRAL again failed to deliver weboc. Instead of negotiating with PaCCS vendor firm, to the astonishment of everybody FBR decided to revert back to old manual system. There was a very strong resistance on the part of importers/exporters and clearing agents who were acclimatized with the fully automated system and were enjoying speedy clearances, the ease of doing business, the reduction of cost of doing business due to absence of un-receipted expenditures and unnecessary demurrages and the dignity and honor to work without high handedness and atrocities of customs officials. They made their representations to the highest authorities. Media also helped them in raising their voice but nothing turned FBR to resolve the issue. Ultimately, M/S Agility switched off PaCCS on the end of 28th May, 2010.
As there was no automated system in place, there was a complete situation of chaos. Realizing the situation reportedly the FBR and a group of importers/exporters and clearing agents approached M/S Agility again who reopened the system for two months with the condition that FBR will negotiate with them for payment of price and compensation.
Unfortunately, FBR is backing up PRAL to keep developing WebOC which will not be an end to end computerized system meant for all importers/exporters but will process the business of 2 to 3 hundred people out of more than twenty thousands importers/exporters and the rest would be placed on the mercy of manual system of One Customs and the customs officials who are well known for their corruption, red tapizm and atrocities, and the customs department will revert back to its old image after playing its leading role for reforms in public sector for five years.