Customs reforms - a burning priority for developing countries

By Godluck Mushi

Customs reforms are essential for promoting economic growth and stability in developing countries. However, in most cases planned customs reforms do face challenges due to the intersection of fiscal imperatives, trade-related prerogatives, and security implications. So what are the key issues surrounding customs reforms in developing countries and what approaches might pave the way for effective and sustainable changes?

Customs administrations in developing countries play crucial roles in trade facilitation, revenue collection, and import security. Trade facilitation reduces border crossing costs and ensures smoother trade, while revenue collection contributes significantly to domestic revenue mobilization. Import security focuses on controlling the quality, standards, and security of imports. Fairness and taxpayer satisfaction are critical factors due to the close association of customs with revenue generation and trade.

Political interference, rent-seeking opportunities, and corruption normally pose significant challenges to implementing customs reforms in developing countries.

Customs officials may be influenced by political patronage, family ties, and social relations, while complex laws and multiple actors exacerbate the situation. A comprehensive approach is required to overcome these bottlenecks with particular focus on the following six key aspects: (i) Strengthening Institutional Capacity, (ii) Embracing Technology and Automation, (iii) Enhancing Cooperation and Information Sharing, (iv) Implementing Anti-Corruption Measures, (v) Engaging with Private Sector and Civil Society, and (vi) International Support and Cooperation. Strengthening Institutional Capacity: Developing countries should prioritize investments in building institutional capacity within customs administrations.

 This includes providing adequate training, enhancing technical skills, and promoting professionalism and integrity. Rwanda's commitment to institutional capacity building, exemplified through training programs and technology-driven solutions, has improved trade facilitation, revenue collection, and anti-corruption efforts.

Embracing Technology and Automation: Leveraging modern technology and automation can significantly enhance customs processes. Electronic customs systems, such as electronic data interchange and risk management systems, streamline procedures, reduce paperwork, and minimize corruption. Tanzania Customs has made significant progress in recent years in deploying new technologies to improve its operations including “TeSWS”, “OSBP”, “TANCIS” and “TRANCIS”. But, what do these acronyms stand for?

Well, TeSWS (Tanzania Electronic Single Window System) is a platform that allows traders to submit all necessary customs documentation and payments in one place. This has significantly reduced the time and cost of clearing goods through customs. OSBP (One Stop Border Post) is the Integrated Border Management System that integrates the operations of different government agencies at the border, such as customs, immigration, and police. This has improved coordination and cooperation between these agencies and made it more difficult for criminals to smuggle goods across the border.

TANCIS (Tanzania Customs Integrated System) is a computerised system that automates the process of clearing goods through customs bringing efficiencies in customs clearance and reducing the risk of corruption, including the ability to complete documentation before arrival of the goods. Last but not least, TRANCIS (Tanzania Customs Risk Management System) uses data analytics to identify and assess risks associated with imported goods. This helps Customs to focus its resources on high-risk shipments and prevent the importation of illegal goods.

Enhancing Cooperation and Information Sharing: Developing countries should foster cooperation and information sharing between customs administrations, regional bodies, and international organizations. Collaborative efforts can lead to harmonized customs procedures, exchange of best practices, and joint initiatives to combat illicit activities.

A commendable initiative by the East African Community (EAC) is the East African Customs Interconnectivity Project, funded by the African Development Fund, aiming to enhance the efficiency and effectiveness of customs operations within EAC. This project seeks to establish a flexible solution that facilitates the seamless flow and exchange of information across different customs systems. The Customs Interconnectivity project strives to eliminate barriers and streamline processes by harmonizing the exchange of customs-related data among EAC member countries.

Implementing Anti-Corruption Measures: Governments should enact and enforce anti-corruption laws, establish independent oversight bodies, and promote transparency and accountability in customs operations.

Whistleblower protection mechanisms and regular audits can address corruption effectively. In Rwanda, Transparency International Rwanda focused on enhancing the protection of whistleblowers by raising awareness about existing legislation and fostering collaboration between law enforcement agencies, civil society organizations (CSOs), and the media. Their efforts resulted in a report on the Status of the Whistleblower Law of 2017, showcasing Rwanda's commitment to equipping the country with robust legal instruments for whistleblower protection.

Engaging with Private Sector and Civil Society: Governments should engage with businesses, industry associations, and non-governmental organizations to gather insights, address concerns, and promote a collaborative approach to reform. Public-private partnerships play a significant role in improving trade facilitation and compliance.

 Singapore, New Zealand, and the Netherlands are seen as role models in terms of effective engagement with the private sector and civil society. International Support and Cooperation: International organizations and development partners should provide technical assistance, capacity-building programs, and financial support to developing countries undergoing customs reforms. Collaborative initiatives, such as the World Customs Organization's Capacity Building Framework, can offer guidance and expertise.

Customs reforms in developing countries such as Tanzania are crucial for effective and sustainable development, economic growth, and enhanced governance. By understanding the challenges, adopting comprehensive approaches, and learning from past experiences, effective customs transformations can be achieved.

Godluck Mushi is a Manager, Indirect Tax Services at PwC Tanzania.