Imported steel still visually assessed for duty
The National Board of Revenue (NBR) has no definite guideline on grading steel, prompting duty evasion through underinvoicing and adoption of other unfair means by dishonest importers, depriving the government of hundreds of crores of taka in revenue each year.
Currently, the duty is imposed based on the import value of two types of qualities of steel, prime and secondary, which again can be divided into 10 sub-categories.
The purchase prices claimed by importers are quite different from international market prices, and there are no guidelines for prime and secondary steel, said customs officials.
As a result, unscrupulous steel importers resort to underinvoicing to evade tax and also bring prime steel declaring those as secondary steel, which is cheaper.
Underinvoicing is an act or practice of stating the price of goods on a letter of credit (LC) as being less than the price actually paid.
Custom House, Chattogram (CHC) seized more than one lakh tonnes of imported steel products between May and July this year and collected around Tk 400 crore in additional revenue through bank guarantees from those importers through a temporary assessment.
The goods were brought under the declaration of being secondary steel but a laboratory report of the Bangladesh University of Engineering and Technology (Buet) identified it as prime steel.
According to the NBR, the minimum price cap of imported prime steel products is $820 per tonne while it is $400 for secondary steel.
Import duty on steel products ranges from 38 per cent to 52 per cent depending on the price of the goods, according to the NBR.
The customs officials said they fail to conduct a proper assessment due to the absence of proper guidelines regarding prime and secondary steel products.
During physical inspection, customs officials differentiate the two types simply by looking at those.
"If it looks shiny or in good quality, we categorise them as prime steel and if the colour is grey, then we label them as secondary steel," said a customs official involved in inspections.
However, many unscrupulous importers import prime steel products using a grey coating in order to evade duty, he claimed.
An importer claimed that genuine secondary steel importers fall in trouble with the customs inspection and assessment procedures in the absence of a proper guideline and wrong assessment processes.
In general, prime steel is one made from iron ore, that passes all manufacturing inspection tests, meets size, dimension, specification and packaging requirements and is free of any defects.
Anything other than that is secondary steel.
Bangladesh imports 10 types of prime and secondary steel, including hot and cold roll, stainless steel and tin and zinc coated steel, according to the NBR.
More than 500 commercial and industrial importers of the country import about 25 lakh tonnes to 26 lakh tonnes of prime and secondary steel products annually, states the NBR data.
Steel products are widely used for making corrugated iron sheets, ships, boats and vehicle bodies, kitchen items and other steel structures.
UNDERINVOICING AN OPEN SECRET PRACTICE
A Dhaka-based trading company released a consignment of secondary quality hot rolled steel worth $39,560 as per the invoice through the Chattogram port recently.
The cost of the goods, including shipping charges and customs duties, was Tk 48,488 per tonne, according to documents seen by The Daily Star. The identity of the importer is not disclosed for legal complications.
Considering another Tk 5,000 per tonne for the transport, storage and other expenses, the importer paid around Tk 53,488 per tonne.
The imported goods were selling in the local market at Tk 102,000-105,000 per tonne, meaning almost twice the import cost.
Asked, an official of the trading house involved in processing documents of the consignment, said the importer actually paid $610 per tonne instead of the $400 per tonne stated in the invoice.
The amount in excess of the invoice value was paid though dubious means and the underinvoicing was adopted to dodge tax, he said, adding, "Everyone, including customs, NBR, and the banks are aware of it."
Similar irregularities also happened in prime steel imports, he claimed.
A letter sent by the CHC to the NBR on August 2 this year shed some light on his claim.
"Domestic importers show lower prices for imported steel products in comparison to that stated in India, China, Japan and Taiwan," it said.
"All the customs stations of the country including the CHC assess these products at $400 to $500 per tonne but the same product is assessed at $500 to $700 in those countries," the letter said.
However, the letter did not mention anything about money laundering.
The letter also highlighted complications in assessment between customs and importers due to a lack of guidelines for the determination of the prime and the secondary steel products.
To have a deeper understanding of the issue, The Daily Star collected data of 1,673 import consignments of hot roll steel imported through Chattogram, Mongla, Pangao and Kamalapur inland container depots (ICD) in fiscal year 2021-22.
During the period, more than 300 companies imported about 191,540 tonnes of prime and secondary hot rolls worth Tk 1,228.87 crore.
The secondary hot roll was imported at $400 to $410 per tonne while the prime was imported at $820 to $984 per tonne, found this newspaper.
However, the average international market price of prime and secondary hot roll steel during that period was $700 and $1,000 respectively, according to London Metal Exchange.
There are even allegations that Bangladesh Steel Importers Association encourages underinvoicing and is critical of those seeking to make imports legally.
Abuzar Gifari, president of the association, denied the allegations.
"Underinvoicing is not true. However, when the price of the product is high in the international market, some may be underinvoicing to survive in the market," Gifari told The Daily Star.
He also blamed the NBR for not preparing the guidelines for prime and secondary steel despite it being one of their demands for more than 10 years.
"If the NBR issued a guideline there would be no need for underinvoicing," he said.
A GUIDELINE IN LIMBO
India's Ministry of Steel focuses identifying non-prime (secondary) steel, stating of characteristics such as having non-standard dimensions, surface defects, internal faults and not conforming to chemical, mechanical and magnetic properties.
Mohammad Fakrul Alam, director general of the Customs Intelligence and Investigation Directorate (CIID), told The Daily Star that they have recently sent a proposal to the NBR regarding the process of taxation to prevent duty evasion.
Elaborating, he said, "The assessment price of secondary steel should be 20 per cent less than the price of prime quality steel or prices of both types of steel based on London Metal Exchange can be considered for assessment."
"The site is internationally recognised and it is considered as the actual price all over the world," he said.
He said they have also recommended that the NBR impose duty based on the weight of the goods instead of the import value of it.
The CHC, on the other hand, proposed imposing a duty in the range Tk 25,000 to 55,000 per tonne on the 10 categories of steel products to prevent revenue evasion.
The Buet proposed a guideline to the NBR defining primary or secondary steel.
The steel sheet or roll which is in mixed, non-homogeneous bundles of varying thickness, width and length is secondary steel, said the Buet guidelines.
The proposed guideline was sent to Parvez Reza Chowdhury, NBR's second secretary (customs: principal), on August 14.
Contacted, Chowdhury said, "We are scrutinising these suggestions and a guideline will be prepared very soon in this regard."