The National Board of Revenue (NBR) has no specific guidelines on steel grading, which encourages customs evasion through under-invoicing and the adoption of other unfair means by dishonest importers, depriving the government of hundreds of taka crores of revenue every year.
Currently, the duty is imposed based on the import value of two types of grades of steel, primary and secondary, which again can be divided into 10 sub-categories.
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The purchase prices claimed by importers are quite different from international market prices, and there are no guidelines for primary and secondary steel, customs officials said.
As a result, unscrupulous steel importers resort to under-invoicing to evade tax and also bring in premium steel by declaring it as secondary steel, which is cheaper.
Under-invoicing 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 over a lakh tonnes of imported steel products between May and July this year and collected about Tk 400 crore in additional revenue from bank guarantees from these importers through temporary valuation .
The goods were declared to be secondary steel, but a lab report from the Bangladesh University of Engineering and Technology (Buet) identified them as premium steel.
According to the NBR, the minimum ceiling price for imported prime steel products is $820 per ton while it is $400 for secondary steel.
According to the BNR, import duties on steel products vary from 38 to 52% depending on the price of the goods.
Customs officials said they were not making a proper assessment due to the lack of proper guidelines for primary and secondary steel products.
During physical inspection, customs officers differentiate between the two types simply by looking at them.
“If it looks shiny or of good quality, we categorize it as primary steel and if the color is gray, we label it as secondary steel,” said a customs officer involved in the inspections.
However, many unscrupulous importers import premium steel products using gray coating in order to evade duties, he claimed.
An importer claimed that genuine importers of secondary steel had problems with customs inspection and valuation procedures in the absence of a proper guideline and flawed valuation processes.
In general, premium steel is steel made from iron ore, which passes all manufacturing inspection tests, meets size, dimension, specification and packaging requirements and is free from any defect.
Anything other than that is secondary steel.
Bangladesh imports 10 types of primary and secondary steel, including hot and cold rolled steel, stainless steel and tin and zinc coated steel, according to the NBR.
More than 500 commercial and industrial importers in the country import about 25 lakh tons to 26 lakh tons of primary and secondary steel products every year, according to NBR data.
Steel products are widely used for manufacturing corrugated sheets, ships, boats and vehicle bodies, kitchenware and other steel structures.
UNDER-BILLING FOR AN OPEN SECRET PRACTICE
A Dhaka-based trading company recently released a shipment of secondary grade hot rolled steel worth $39,560 as per invoice via Chattogram port.
The cost of goods, including shipping and customs duties, was Tk 48,488 per tonne, according to documents viewed by The Daily Star. The identity of the importer is withheld for legal complications.
Taking into account an additional Tk 5,000 per ton for transport, storage and other expenses, the importer paid around Tk 53,488 per ton.
Imported goods sold on the local market for between 102,000 and 105,000 taka per ton, almost double the import cost.
When questioned, a trading house official involved in processing the documents for the shipment said the importer had actually paid $610 per ton instead of the $400 per ton shown on the invoice.
The amount exceeding the invoice value was paid through dubious means and under-invoicing was adopted to evade tax, he said, adding, “Everyone including customs, NBR and the banks are aware of it”.
Similar irregularities have also occurred in premium steel imports, he said.
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 compared to those quoted in India, China, Japan and Taiwan,” he said.
“All customs posts in the country, including the CHC, value these products between $400 and $500 a ton, but the same product is valued between $500 and $700 in these countries,” the letter said.
However, the letter did not mention anything about money laundering.
The letter also highlighted complications in valuation between customs and importers due to a lack of guidelines for determining primary and secondary steel products.
To better understand the problem, The Daily Star collected data on 1,673 hot rolled steel shipments imported through the inland container depots of Chattogram, Mongla, Pangao and Kamalapur in the fiscal year 2021-22.
During the period, more than 300 companies imported about 191,540 tonnes of primary and secondary hot rolled products worth Tk 1,228.87 crore.
The secondary hot roll was imported at $400 to $410 per ton while the primary was imported at $820 to $984 per ton, this newspaper found.
However, the average international market price for primary and secondary hot-rolled steel during this period was $700 and $1,000 respectively, according to the London Metal Exchange.
There are even allegations that the Bangladesh Steel Importers Association encourages under-invoicing and criticizes those who seek to import legally.
Abuzar Gifari, president of the association, denied these allegations.
“Under-invoicing is not true. However, when the price of the product is high in the international market, some may under-invoice to survive in the market,” Gifari told the Daily Star.
He also blamed the NBR for not having prepared the guidelines for primary and secondary steel when this had been one of their demands for more than 10 years.
“If the NBR issued a guideline, there would be no need for underbilling,” he said.
A GUIDELINE IN LIMB
The Indian Steel Ministry focuses on identifying non-primary (secondary) steel, indicating characteristics such as non-standard dimensions, surface defects, internal defects and non-compliance with chemical properties , mechanical and magnetic.
Mohammad Fakrul Alam, Director General of Customs Intelligence and Investigations Directorate (CIID), told the Daily Star that they recently sent a proposal to the NBR regarding the taxation process to prevent customs evasion.
Clarifying, he said, “the valuation price of secondary steel should be 20% lower than the price of prime steel or the prices of both types of steel based on the metal exchange of London may be taken into account for the assessment”.
“The site is internationally recognized and it is considered the real prize all over the world,” he said.
He said they also recommended that the NBR impose duties based on the weight of the goods instead of their import value.
The CHC, on the other hand, has proposed imposing a duty in the range of Tk 25,000 to 55,000 per ton on the 10 categories of steel products to prevent tax evasion.
Le Buet proposed a directive to the NBR defining primary or secondary steel.
Sheet or coil of steel that is found in mixed, non-homogeneous bundles of varying thickness, width, and length is secondary steel, per Buet’s guidelines.
The proposed directive was sent to Parvez Reza Chowdhury, second secretary of the NBR (customs: principal), on August 14.
When contacted, Chowdhury said: ‘We are looking at these suggestions and a guideline will be prepared very shortly in this regard.