To balance the task of revenue collection while at the same time facilitating trade is a big challenge before the tax authority. Usually, the customs duty is levied on imported and exported goods at the border, that is, at the port of entry or exit of the cargoes. But this is a complicated task involving resolution of disputes, for instance, over HS code and determination of customs duty for the consignments awaiting clearance at the port. To get around the challenge, the World Trade Organization (WTO)-introduced Post-Clearance Audit (PCA) is a globally accepted practice.
The PCA process, essentially, is a structured examination of the commercial system followed by a business, its sales contracts, financial and non-financial records, physical stock and other assets. Through such scrutiny, it (PCA) aims to measure and improve compliance of the office or factory premises of the businesses concerned. Clearly, the purpose of such audits is to verify the accuracy and authenticity of the declarations and look into the traders' commercial data, business systems, records and books. This kind of audit can take place at the office premises of the business concerned and may take into account individual transactions, which is known as transaction-based audit. Or it may also cover imports and/or exports performed by the business in question over a certain period of time, the so-called company-based audit.
However, it has been facing resistance from business people as they think it hampers business by way of slowing down trade process and industrial production. So, to facilitate work and guide customs officials, the customs wing of the NBR has introduced the Customs PCA Manual 2023. With this PCA guideline, which is both transaction-based and system-based, it is believed, customs officials would be able to conduct their audit within the stipulated timeframe keeping with the manual. Notably, the system-based approach to audit focuses on testing a business's internal control systems. This system, basically, considers if the financial reporting system of the client is risk-free. According to the framers of the PCA manual, following the guidelines, the customs officials from now on would be able to conduct system-based PCA for large businesses. Moreover, the PCA manual in question specifies the timeline, by which the responsible government agencies are to seek explanations and collect applicable duty, tax and penalties in case post-audit irregularities are found. Such a built-in timeline in the system is meant to help avoid any unnecessary delays in auditing that may impact business negatively. What is more, to expedite work, a software is going to be introduced to automatically select which import and export cargoes have to be audited for any irregularities. Also, the software would detect, among other issues, if the invoice of imported goods shows a lower price than that in the exporting country. No doubt, these speak of the positive aspects of the software for the PCA.
But given that the PCA-manual incorporates more than 200 audit criteria, businesses consider this as a thorn in their side. For, they fear, such a large number of audit areas in the PCA guidelines leave the scope for harassment and delay in carrying out smooth trade and manufacturing. They further complain of simultaneous existence of the manual and automated systems of audit in the PCA guidelines, which, to them, is inherently selective and hence a potential source of harassment by the customs officials. So, to win the trust of businesses, the challenge will be to implement the guidelines in the Customs PCA 2023 manual in a manner that is free from any bias. Let the authorities meet the challenge.
