Mucky business

Customs officials should take equal blame for rise in cases of underinvoicing

Sep 12, 2017-Last week, market monitoring teams of the government sealed eight branded stores in Durbar Marg, Kathmandu’s high-end shopping street, accusing them of charging exorbitant prices. In a free market economy, the government does not regulate prices, as it is assumed competition among various players compels businesses to offer best prices to consumers. But Nepal is a country where cartels control prices in most of the sectors. Hence, the initiative taken by the government to raid stores that were overcharging customers is expected to tame rowdy businesses and protect the interest of consumers.

Having said this, the private sector is not the only party that should be blamed for the scourge that has tarnished the image of the retail sector. The government is playing an equally important role in promoting this malpractice.

In the fiscal year 2015-16, for instance, Nepal imported around 38 million pairs of shoes, sandals and slippers. The value of these products, as declared at customs points, was Rs3.3 billion. This means cost price of each shoe, sandal or slipper, on average, stood at Rs87. Isn’t this price too good to be true? It is, because most of the importers did not reveal actual cost price at customs offices to evade customs duty and value added tax.

Many importers in Nepal resort to underinvoicing to save spending on taxes and duties. So, even if a good was bought for, say, Rs10,000, in the international market, importers tell customs officials they bought it for Rs1,000. This way they can save spending on taxes and duties.

Customs officials are very well aware of this malpractice. Yet they collude with importers or their agents and release goods at prices declared by importers. This is one of the reasons why there is big difference between cost and retail selling prices. And this is where the root of the problem lies.

The law has given ample authority to customs officials to purchase goods by adding 5 percent to rates declared by importers, if they deem the cost price has been deliberately suppressed. Last year, the Department of Customs used this authority to purchase shoes imported by Bentley. The department later auctioned the shoes at over four times the cost declared by Bentley. Several years ago, the department had also auctioned automobiles in a similar manner. It is time the government wield this power more often to discourage importers from concealing the actual cost price.

This will not only bring transparency in the market but raise tax collection of the government as well. At the same time, market monitoring should be conducted round-the-year, rather than only during the festive season of Dashain, to truly protect the interest of consumers and prevent them from being exploited by retailers.

Published: 12-09-2017 08:02

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