CUSTOMS POST CLEARANCE AUDIT
Ms. Ayesha Niaz Director PCA
As we celebrate International Customs Day 2022, a day dedicated to the theme of “Scaling up Custom Digital Transformation by Embracing a Data Culture and Building a Data Ecosystem”, we see how increased automation and digitization in Customs has significantly enhanced the role of Post Clearance Audit (PCA) in Customs enforcement and facilitation.
The launch of WeBOC has allowed for a paradigm shift in Customs clearance across Pakistan. With enhanced green channel clearance, Customs aim to move from strict port controls to more targeted border inspections along with enhanced post clearance verifications, to reduce the time and cost of doing business in line with international best practice.
The World Customs Organization (WCO) strongly recommends a transition from border-based controls to PCA as a primary enforcement tool for Customs, to ensure the smooth hand timely clearance of goods and undisrupted global supply chains.
The post clearance audit approach is essentially a risk-based approach allowing Customs administrations to concentrate their limit resources more effectively and to partner with the business community to improve compliance and facilitate trade. The post clearance audit mechanism cannot, however, operate in isolation – it works only when simplified clearance procedures are instituted at the borders and a dynamic risk management system is in place, capable both of informing and of being informed by PCA.
WCO defines the post clearance audit process as a post-release structured examination of the concerned commercial data, sales contracts, financial and non-financial records, physical stock etc. of traders aimed at both measuring and improving compliance.
The Directorate General of Post Clearance Audit-Customs, Pakistan was established in 2009 in compliance of the recommendations of WCO’s Revised Kyoto Convention and WTO’s Trade Facilitation Agreement (WTO TFA), Pakistan being a signatory to both agreements. The origination’s functions include verifying trade-related declarations to detect discrepancies recover revenue and create deterrence; facilitating compliant trade and developing mechanisms to encourage trader compliance.
Currently, the organization operates with a Directorate General Secretariat at Karachi and three independent Regional Directorates at Karachi, Lahore and Islamabad, covering the Southern, Central and Northern regions of Pakistan respectively. Its purview, as defined by SRO 1114(I)/2019, extends to all imports into the exports from the country.
Over the years, the Directorate General of Post Clearance Audit has striven hard to progressively enhanced its capacity through greater automation, especially with the launch of the PCA WeBOC modules and the increased use of information technology for a targeted, strategic and efficient compliance program.
The organization conducts Transaction Based Audits (TBAs), Entity Based Audits (EBAs) and Sector Based Audits (SBA). PCA requires a strong data culture and relies heavily on data management, data analysis, and its effective usage for planning strategy and operations. For an effective PCA, the use of trader profiling, trend analyses, enhanced risk management, and a robust importer registration program is of paramount importance for targeted action and review.
Globally, in countries like New Zealand, Japan, Korea and Canada, where effective PCA mechanisms have been in place for many years, the focus is more on-site entity-based audits rather than transaction-based audits as it is in developing countries like Bangladesh and Pakistan. Also, these countries boast in integrated and highly dynamic risk management system that plays an important role in the selection and targeting of audits – something stills to be fully implemented in both Pakistan and Bangladesh.
PCA involves verification of Customs declarations through the examination of documentation maintained by traders or their agents once goods have been released from Customs control. A major challenge in the post-clearance audit process is to accurately measures the effectiveness of the audit program and the compliance level or compliance health of trade.
There are significant compliance challenges, lack of documentation is an issue in all developing economies due to a large informal sector. Third parties located in foreign jurisdictions may not cooperate with auditors, and variations in the way different regions conduct audits/verifications may result in confusing and inconsistent decisions for traders.
The Federal Board of Revenue (FBR) and the World Bank have agreed on a series of modernization initiatives focusing on revenue and trade facilitation through increased automation and business process improvements. As part of this reform, PCA is also looking to enhance its inherent capacities by strengthening and integrating the existing Risk Management system in a way that PCA’s feedback renders it both dynamic and relevant.
PCA also intends to fully automate its functions and data management systems and to actively work towards a better trained and well-equipped workforce, in line with WCO guidelines and international best practices, this organization aims at ensuring that while its enforcement function concentrates on issues like money laundering, fraud and criminality, its facilitation function identifies compliant trades to facilitate economic growth and to lay a sound foundation for the Authorized Economic Operator (AEO) Programme in Pakistan (a WTO TFA requirement).
In spite of impediments, PCA has kept pace with the audit benchmarks outlined in the Audit Policy circulated in 2021. PCA Directorates, despite human resource constraints and other limitations, have contributed positively by making detections in the areas of misdeclaration of value/description/origin, misuse of concessions and inadmissible benefits etc.
This has helped in improving enforcement and also making trade more compliant to stipulated laws and rules. However, with the afore-mentioned reforms to strengthen the digital footprint by shifting to fully automated audit systems, PCA Pakistan stands poised to achieve its full potential through enhanced and effective automation, training and intelligent data management and analysis. PCA shall then be able to better deliver on a dynamic Customs compliance and control mechanism as envisaged by the WCO.