Customs intelligence detects massive duty evasion by DEPZ units
Saturday, 16 June 2007
A Z M Anas
The government has reinforced its drive to uncover the incidences of duty evasion at the Dhaka Export Processing Zone (DEPZ), as a number of companies are suspected to be involved in smuggling activities.
It is alleged that some "fake" manufacturers of interlinings, a sort of apparel accessories, have dodged sizable amount of duties by selling imported finished item to the local market without adding minimum value.
The companies are understood to have imported finished goods in disguise of semi-finished items through mis-declaration, a common trick to avoid taxes.
In a recent probe, the Department of Customs Intelligence and Investigation (DCII) has found FEM Accessories Limited, a self-vaunted interlinings manufacturer operating at the DEPZ, imported duty-free interlinings worth Tk 350 million and subsequently sold it to the local market without adding any value.
The Customs watchdog also found that the company imported interlinings in metre lengths packing and sold the products in the same pre-packed rolls without pre-cutting it to the size and form of the shirt-collar. This fraudulent practice is further explained by the fact that the FEM authorities sold the same amount it imported, while showing no wastage.
The allegations were slapped against the FEM in a recent report prepared by the DCII.
The report says FEM evaded sizable amount of duties over the years infringing on relevant rules and regulations as set by the National Board of Revenue and Bangladesh Export Processing Zones Authority (BEPZA).
According to the DEPZ rules, an industrial unit is obliged to follow the whole manufacturing process if it imports duty-free raw materials or unfinished goods.
The BEPZA provides a string of fiscal as well as non-fiscal incentives to encourage investors-both local and foreign-to set up manufacturing units in the industrial parks, thus generating employment.
The investors at the export processing zones get the facilities of tax holiday for 10 years followed by reduced rate for the next five years, duty-free import and export, exemption from dividend tax, and other trade preferences.
After a visit to FEM, the Customs intelligence personnel saw only three roll-cutting and counting machines and some finished interlinings imported from abroad.
The intelligence report says, the machinery needed to make finished products by processing semi-finished interlinings did not exist inside the factory. The owners set up only three machines, a deficiency that proves the factory is not a full-fledged one.
According to the report, it will require at least 15 types of equipment, including coating machines, fabric inspection and rewinding and thermo-bonding, to turn semi-finished interlinings into the finished one.
In addition, more than 25 raw materials are required for production. Interestingly, the probe body found no raw materials at the company compound. Even the factory authorities failed to produce any document showing the imports of raw materials. In a written statement, the company also admitted that it was violating the Customs and BEPZA rules.
According to the findings, the company imported 1.38 million kilo grams of finished interlinings between January 2002 and October 2006 and sold it to the local ready-made garments manufacturers without going through manufacturing process.
In a separate investigation, the Customs watchdog found that Osman Interlinings Limited is also alleged to be involved in smuggling activities.
Osman installed a non-woven coating machine, but it was importing fully-coated woven cotton and woven T/C interlinings in rolls for the supply in the local apparel market.
A source said Osman's duty evasion could be much higher than that of FEM, as it imported interlinings worth Tk 500 million.
The source noted similar investigations are underway to detect duty evasion by other companies such as SBC, Chowdhury Interlining and TenCate Permess Interlining Limited.
Talking to the FE, director general of the Department Jahan Ara Siddique said the authority plans to recommend stern legal action against the unscrupulous interlinings importers who are involved in smuggling.
"We'll recommend the NBR and Customs bond authorities taking punitive action against the fake interlinings to recover the evaded duties," the Customs intelligence chief said.
When contacted, Ashraf Abdullah Yussuf, executive chairman of the BEPZA), said he was yet to receive any complaint about the duty evasion by the fake companies operating in DEPZ.
"If we receive complaint against the fake interlinings manufacturers, we will take stern legal action and scrap their operating licenses," the BEPZA chief told the FE.
The "fraud" interlinings makers operating in the country's industrial parks are importing finished goods, thus hurting the genuine makers of interlinings--a kind of apparel accessories.
The finished interlinings importers, who claim themselves as manufacturers, are enjoying the tax holiday and VAT (value added taxes) exemptions, thereby depriving the government of sizable revenues.
The fake companies enjoy "undue" edge over genuine manufacturers, as they are able to operate a warehouse-facility in order to sell their products to local apparel makers.
The turnover of the apparel sub-sector industry is estimated at US$30 million a year and Etacol Bangladesh is the market leader.
The government has reinforced its drive to uncover the incidences of duty evasion at the Dhaka Export Processing Zone (DEPZ), as a number of companies are suspected to be involved in smuggling activities.
It is alleged that some "fake" manufacturers of interlinings, a sort of apparel accessories, have dodged sizable amount of duties by selling imported finished item to the local market without adding minimum value.
The companies are understood to have imported finished goods in disguise of semi-finished items through mis-declaration, a common trick to avoid taxes.
In a recent probe, the Department of Customs Intelligence and Investigation (DCII) has found FEM Accessories Limited, a self-vaunted interlinings manufacturer operating at the DEPZ, imported duty-free interlinings worth Tk 350 million and subsequently sold it to the local market without adding any value.
The Customs watchdog also found that the company imported interlinings in metre lengths packing and sold the products in the same pre-packed rolls without pre-cutting it to the size and form of the shirt-collar. This fraudulent practice is further explained by the fact that the FEM authorities sold the same amount it imported, while showing no wastage.
The allegations were slapped against the FEM in a recent report prepared by the DCII.
The report says FEM evaded sizable amount of duties over the years infringing on relevant rules and regulations as set by the National Board of Revenue and Bangladesh Export Processing Zones Authority (BEPZA).
According to the DEPZ rules, an industrial unit is obliged to follow the whole manufacturing process if it imports duty-free raw materials or unfinished goods.
The BEPZA provides a string of fiscal as well as non-fiscal incentives to encourage investors-both local and foreign-to set up manufacturing units in the industrial parks, thus generating employment.
The investors at the export processing zones get the facilities of tax holiday for 10 years followed by reduced rate for the next five years, duty-free import and export, exemption from dividend tax, and other trade preferences.
After a visit to FEM, the Customs intelligence personnel saw only three roll-cutting and counting machines and some finished interlinings imported from abroad.
The intelligence report says, the machinery needed to make finished products by processing semi-finished interlinings did not exist inside the factory. The owners set up only three machines, a deficiency that proves the factory is not a full-fledged one.
According to the report, it will require at least 15 types of equipment, including coating machines, fabric inspection and rewinding and thermo-bonding, to turn semi-finished interlinings into the finished one.
In addition, more than 25 raw materials are required for production. Interestingly, the probe body found no raw materials at the company compound. Even the factory authorities failed to produce any document showing the imports of raw materials. In a written statement, the company also admitted that it was violating the Customs and BEPZA rules.
According to the findings, the company imported 1.38 million kilo grams of finished interlinings between January 2002 and October 2006 and sold it to the local ready-made garments manufacturers without going through manufacturing process.
In a separate investigation, the Customs watchdog found that Osman Interlinings Limited is also alleged to be involved in smuggling activities.
Osman installed a non-woven coating machine, but it was importing fully-coated woven cotton and woven T/C interlinings in rolls for the supply in the local apparel market.
A source said Osman's duty evasion could be much higher than that of FEM, as it imported interlinings worth Tk 500 million.
The source noted similar investigations are underway to detect duty evasion by other companies such as SBC, Chowdhury Interlining and TenCate Permess Interlining Limited.
Talking to the FE, director general of the Department Jahan Ara Siddique said the authority plans to recommend stern legal action against the unscrupulous interlinings importers who are involved in smuggling.
"We'll recommend the NBR and Customs bond authorities taking punitive action against the fake interlinings to recover the evaded duties," the Customs intelligence chief said.
When contacted, Ashraf Abdullah Yussuf, executive chairman of the BEPZA), said he was yet to receive any complaint about the duty evasion by the fake companies operating in DEPZ.
"If we receive complaint against the fake interlinings manufacturers, we will take stern legal action and scrap their operating licenses," the BEPZA chief told the FE.
The "fraud" interlinings makers operating in the country's industrial parks are importing finished goods, thus hurting the genuine makers of interlinings--a kind of apparel accessories.
The finished interlinings importers, who claim themselves as manufacturers, are enjoying the tax holiday and VAT (value added taxes) exemptions, thereby depriving the government of sizable revenues.
The fake companies enjoy "undue" edge over genuine manufacturers, as they are able to operate a warehouse-facility in order to sell their products to local apparel makers.
The turnover of the apparel sub-sector industry is estimated at US$30 million a year and Etacol Bangladesh is the market leader.