informal trade practices (itp) a challenge to customs administrations wco revenue conference 2014

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INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014 30 th June – 1 July 2014 Brussels - Belgium Presentation by: Richard K. Kamajugo Commissioner Customs, Uganda Revenue authority

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INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014 30 th June – 1 July 2014 Brussels - Belgium Presentation by: Richard K. Kamajugo Commissioner Customs, Uganda Revenue authority . OUTLINE. INTRODUCTION DEFINITION OF INFORMAL TRADE - PowerPoint PPT Presentation

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Page 1: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

INFORMAL TRADE PRACTICES (ITP)

A CHALLENGE TO CUSTOMS ADMINISTRATIONS

WCO REVENUE CONFERENCE 201430th June – 1 July 2014

Brussels - Belgium Presentation by: Richard K. KamajugoCommissioner Customs, Uganda Revenue authority

Page 2: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

OUTLINE

INTRODUCTION DEFINITION OF INFORMAL TRADE CHARACTERISTICS OF INFORMAL TRADE

SECTOR KEY CHALLENGES WAY FORWARD

Page 3: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Introduction Informal trade is as old as International Trade; It is a major source of employment in developing countries , providing

between up to 70% of total employment in a number of African countries; Informal trade in Africa has always been the response of the population

to: • economic crises• unemployment in the formal Sector Such trade permits the distribution of consumer goods, whether

imported or not; It is an ungoverned range of official trade and the major factor driving

imports from the rest of the world. Managing informal trade therefore poses a big challenge to most customs

administration.

Page 4: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Definition of Informal TradeThe definition of informal trade is often used interchangeably with a definition of informal activity;The informal activity is characterized primarily by four elements: It operates on a small scale, with weak

levels of organization; Informal employment (relationships are

usually based on part-time employment, kinship or personal and social relationships, rather than contractual agreements or formal guarantees);

Individual enterprises are not distinct moral entities separate from the households to which they belong;

From a legal perspective, “there is personal, unlimited liability on the part of the proprietor for all commitments entered.

According to the International Labor Organization (ILO), the informal sector should be defined independently of: the location of productive activity, the extent to which fixed capital is used, the effective life-span of the enterprise

(permanent or temporary), and the principal or secondary nature of

the employment” Thus, for the ILO, the unit or formal enterprise must be defined by one of the following criteria: The enterprise or paid workers are not

registered; or The size of the unit is not commensurate

with its levels of employment.

Page 5: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Characteristics of Informal Trade Practices

For Customs control purposes, Informal trade can be grouped into the following:1) large retail purchases that are traded at

international levels;2) A small, “one-man” operating at local level across

borders: on bicycles using hand/push carts disabled person on wheel chairs on motorcycles 3. This are sometimes consolidated after crossing the border.

Page 6: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Characteristics of Informal Trade Practices – Large retail purchases

For Customs purposes, informal trade refers to those importers with the following main characteristics: Predominantly cash based transactions; Poorly maintained or non- existent accounting

records/ books; No permanent trading premises (very difficult to

locate); Easily transfers from one premise to another

Page 7: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Characteristics of Informal Trade Practices – Large retail purchases

Operates as individual (keeps on changing names); Deal in high proportions of smaller packages of

goods;

Page 8: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Characteristics of Informal Trade Practice – across borders

Page 9: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Characteristics of Informal Trade Practice – across borders

Page 10: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Is this an NTB?

Page 11: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Key challenges

Difficult to trail transaction values; Prone to undervaluation; Cash based transactions:• cash receipt or no evidence of payment• Post Clearance audit (PCA) cannot be conducted;

Greater risk of fraud and difficulty in proving

fraud;

Page 12: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Key challenges Continued

Liberalisation of the foreign Exchange market; Lack of regulation framework to handle the informal

trade practice; International trade versus the cultural norms at the

borders;Creates unfair competition in the domestic markets

of the importing country;When informal trade is large formal importers tend

to under- invoice in order to compete with the informal traders

Page 13: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Way forward

In order to address the challenges, Uganda Revenue Authorities has initiated the following programs: Consistent cross border sensitization of

border communities; Harmonization of tax policies and rates Tax education /client awareness programs

(seminars/workshops, radio talk show, regular meetings);

Use of automated valuation database – check values outside the range;

Page 14: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

Way forward continuedEncouraging the Informal Trade Sector to form

associations and open/transparent dialogues with their leaders.

Page 15: INFORMAL TRADE PRACTICES (ITP) A CHALLENGE TO CUSTOMS ADMINISTRATIONS WCO REVENUE CONFERENCE 2014

THANK YOU