The Role of Information Technology in Customs Modernization

Author:Luc De Wulf and Gerard McLinden

    The contributions of consultants Tony Mort and Alan Hall and of David Kloeden and Patricio Castro of the International Monetary Fund are recognized with gratitude.

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Customs administrations today face a variety of political and administrative pressures and challenges. These include fluctuating workloads with static or declining resources, greater business expectations, and continuing pressures to meet often-conflicting government revenue, trade facilitation, social protection, and national security objectives. Moreover, customs administrations are increasingly required to integrate their systems and procedures with the sophisticated global logistics networks used by international trade and transport operators. To cope with these pressures and challenges, the international customs community looks to the applied use of information technology (IT) as a catalyst for improving organizational and operational efficiency and effectiveness. As a result, many modernization programs in the customs sector over the last decade have incorporated significant computerization components. Many customs administrations today use varying degrees of automation to support core customs functions such as goods declaration processing,revenue assessment, revenue collection, risk management, and management reporting.

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This chapter is not designed as a technical guide for IT specialists, nor as a business process re-engineering guide. Rather, it summarizes the benefits of applied use of information and communications technologies (ICT) in the customs sector, and the important role ICT can play in the wider process of customs modernization and reform. The chapter discusses the advantages and disadvantages of nationally built ICT solutions and briefly presents the various off-the-shelf solutions that are presently on the market. It draws on some important lessons learned by a range of organizations, donors, consultants, and customs professionals, and emphasizes key issues to be considered when developing appropriate computerization strategies for the customs administrations of developing economies.

The first section highlights the importance of the use of ICT for effective and efficient customs operations. The second section focuses on the various components of a computerized customs management system. The third section presents the key points of a strategy for computerization of customs. The fourth section briefly describes the advantages and disadvantages of adopting national versus off-the-shelf customs management systems, and summarizes the major third-party products that are available. The final section contains operational conclusions. Where possible, case studies have been incorporated to illustrate points made.

The Role of Information and Communications Technology in Customs Modernization

While it is evident that IT is assuming an increasingly important role in modern customs administration, the priorities, expectations, experience, capabilities, and resources of individual customs administrations vary considerably. Beginning in the early 1970s, customs administrations of many developed economies began to recognize the significant advantages of using technology-based solutions to improve their operational efficiency. They designed and developed their own customs computer systems, tailored to meet national needs. Over the years such systems have been enhanced, simplified, and in some respects standardized in line with international best practices. They were adjusted over time to capitalize on changes in information and communications technologies. As a result, such countries have computer systems that reflect modern customs management practices such as self assessment, clearance on minimum information, deferred payment of revenues, an intelligence-led and targeted risk management approach to clearance of international consignments, and sophisticated post-clearance audit regimes.

The historical experience with ICT of many developing and emerging economies has been quite different and not without significant difficulty and, in some cases, high financial cost. Lacking the necessary financial and human resources and access to a well-established domestic IT market, customs administrations of many developing countries have been slow to take advantage of the full potential offered by the appropriate application of modern technological advances. Fortunately, this situation has changed over recent decades, partly as a result of the commercial availability of customs-specific computer systems, and the international donor community that has stepped up support to strengthen customs administrations. Yet, the technological infrastructure and support available in many developing countries lags far behind that which is available in more developed economies, and increasingly, behind the technology-intensive business practices of many international traders. Moreover, when automated systems are introduced, they are often not used to their full potential. At times, the Customs Code requires the submission of paper documents for cargo clearance purposes, thereby duplicating information often provided to customs electronically. More frequently though, customs staff and management have been reluctant to implement the processing simplification required by the new IT systems or to adjust workflow and staff assignments accordingly. At times the ICT was introduced without first streamlining, standardizing, and simplifying existing manual processes and procedures. In such cases it is hardly surprising that the implementation fails to meet business expectations. Experience clearly shows that the basic principle should be to first standardize, consolidate, modernize, and simplify processes and procedures before computerization. In the absence of such simplification, the inefficient manual system may at best be replaced by an Page 287 inefficient computerized system, with no gain to anybody.

Designing new, simplified practices and processes inspired by international best practices that have proven to reduce the compliance cost to the commercial community may require changes in government policy, in the legislative base, in the application of human resources management policies and procedures, and in the way customs policies and procedures are applied. Given the possible implications of these changes, much benefit can be gained from securing political support for the reform and full support from the government and senior management of the customs administration.

Customs often administers the value added tax (VAT) or similar consumption taxes. Hence, effective VAT administration at the border should be designed along with effective customs management practices. Customs initiatives, such as de minimis values for declaration, deferred payment of revenues, clearance on minimum information, periodic goods declarations, tariff-free policies and duty-free imports, and so on have to be carefully reviewed and integrated with any new VAT legislation. It should be clear, therefore, that the IT system should be designed to support a systems-based approach to total revenue administration at borders.

The automation efforts for customs processes must be cognizant of at least two key features of modern customs practices:

* Modern customs processes must be simple and transparent but cannot be simplistic. This does not, however, prevent complex systems from emerging, as customs needs to cope with a wide range of special issues, many of which pose considerable danger to revenue and other policy objectives. For instance, some goods, imported under suspense regimes on the grounds that they are not intended for home consumption, may be fraudulently diverted to the domestic market. This will require that special safeguards be provided.

* Modern customs processes are migrating from physical to post-clearance control, with substantial reliance on self-assessment by taxpayers. It is increasingly recognized that the key to effective revenue administration is voluntary compliance by the taxpayer, and that the key to voluntary compliance is self-assessment. In the customs context, this means less emphasis on extensive physical inspection at the point of entry as traders (or their agents) declare the revenues payable-but with effective control exercised after goods have been cleared for free circulation. Post-clearance control will involve audit and other checks focused on addressing transactions in which the risk of incorrect declaration is greatest. Clearly, this will require reliance on an intelligence-led and targeted risk management approach that isolates high risk consignments, or consignments of special interest. Appropriately designed computer modules can help greatly.

The Need to Integrate ICT in Customs with an Overall Modernization Program

In recognition of the pivotal role computerization plays in modern customs administration, many customs reform programs have placed a high priority on the selection and implementation of appropriate and effective technological solutions. Indeed, donors have often allocated large percentages of project funds to the upgrading or replacement of such computer systems. In recent...

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