Eliminate under-invoicing in import trade …Critical thinking

September 8, 2017
Source: Edmund Adu-Danso l thebftonline.com l Ghana
Eliminate under-invoicing in import trade …Critical thinking

The levying of duty on imports serves many purposes for any state. There are historical antecedents for the use of taxes and levies by kings, states, chiefs, and all sorts of Authorities for both useful and obnoxious purposes. Generally taxes and levies generate revenue which the state uses for the public good.

For import-dependent countries like Ghana, import duties account for a significant percentage of State income to the government. All sorts of goods are imported into Ghana – from highly technical, brand new luxury products to basic staples, store rejects and waste. In fact, one good use of taxes and levies is to selectively encourage or discourage the import of some goods or services. Technology imports are usually taxed at a low rate to encourage the growth of industry. Agricultural technological inputs are sometimes zero-rated.

Nobody enjoys paying taxes or duties – never mind that we are all aware that it is for the public good. Naturally individuals and businesses would do all that is possible to reduce their duty or tax liabilities and under-invoicing is a common method employed – at least in Ghana. Thus government is always looking for ways to ensure that invoices presented by importers for goods reflect the real value of the goods.   We have used arrival-inspection and pre-shipment inspection agencies, classification and valuation codes, layers of bureaucracy, certification and approval – name it.

We are still searching – because it takes just a matter of time for importers to develop new ways including collusion with State agencies to push under-invoiced documents through the system. How do we develop a system that completely eliminates under-invoicing – at least for imports?

First thing – so long as the calculation of duty is based on the VALUE of goods, under-invoicing is not likely to be eliminated completely! I think it is that simple. So my proposal is to use volume instead of value to determine the duty payable. Simple!

Let’s take a scenario. The revenue agencies want to raise a million cedis from the import of saloon cars. First thing – what is the trend of imports of saloon cars for previous years? If a thousand saloon cars are imported every year on average. Government simply levies a duty of a thousand cedis per car irrespective of the value of the car! Simple. Government will get the million cedis budgeted with minor variances. This method can be applied to all other forms of imports of physical goods. So long as the invoice value of the good is irrelevant in calculating the duty payable, there incentive to under-declare the value at the entry point is completely removed.

This method will also have other benefits to it. One such benefit is that it unifies the liability of citizens to pay for the common use of our facilities. Simply put, once you and I have a saloon car each (irrespective of the value of the car) we contribute the same amount to the building of the roads on which our cars travel. After all, both cars have four tyres each and use the road on equal terms. From this basic idea, duties on goods can be varied according to their capacity to exploit our common environment. Highly exploitative imports pay higher levies.

Another benefit of a volume-based system is that people will readily invest in higher-priced goods if those goods have higher intrinsic value over lower-priced goods of the same volume. Using phones for simplicity – if a container load of phones pays the same duty irrespective of their value, we would find better quality phones on our market. This will lead to efficient, long-lasting technology products on our market.

The effect of such a system on the moral behaviour and expectations of employees in our revenue generation matrix would be even more remarkable. It is far easier to perpetrate under-invoicing than to lie about the quantity or weight of goods. Thus the tendency to be corruptible in our port systems will reduce drastically, leading to efficiency in operations as less time is wasted on documentation; the resignation or dismissal of greedy port officials; the reduction of nepotism in staffing our ports; and other similar human-related issues.

Perhaps there may be international trade reasons why we “cannot” implement such a system. But why should our development paradigm by hi-jacked by external restrictions if the prevailing system does not inure to our benefit?

And now to propose an even more drastic approach to the charging of duties and levies on vehicle imports. The current valuation system for charging duty on vehicle imports makes it difficult for Ghanaians to import brand new or fairly new cars. The table below (from GRA Customs Guide; August 2011, Vol 1, Issue 1) tells the story.


For the purposes of levying taxes the value of a vehicle shall be deemed to be the Home Delivery Value depreciated as below plus the Freight and Insurance as stipulated under section 90 of PNDC LAW 330, 1993.

Where the age of a used motor vehicle does not exceed six months

The price shall be deemed to be the first Purchase Price

Where the age exceeds six months but does not exceed one and a half years

Eight–five per centum of the first Purchase Price

Where the age exceeds one and a half years but does not Exceed two and a half years

Seventy per centum of the first Purchase Price

Where the age exceeds two and a half but does not exceed five years.

Sixty per centum of the first Purchase Price

Where the age exceeds five years

Fifty per centum of the first Purchase Price

First Purchase Price is the price of the brand new vehicle from the manufacturer (my definition)

With this system, the actual value you paid for the vehicle at the country of origin does not matter in the computation of the duty. What matters is the value of a brand new version of that car – and the entity that determines that value for you at our port!

When the tariff value is correctly determined by the table as shown, fairly new cars are expensive by the Ghanaian standard as you are hit by a higher value in the home country, and then at our port. Thus we buy cars with the lowest chargeable duty.

Cars older than 10 years suffer a penalty, so we prefer to buy cars between 6 and 9 years old – and which are usually in very good condition. I understand there is a car market in Germany where cars in their 9th year are sold for a pittance because that is their last year before they are hit by a penalty when they enter Ghana – never mind that the car could be in the best of shape. As such most of the “brand new” unregistered vehicles we see at DVLA are actually 6 to 9 years old. Meanwhile, no matter how good a 6-year old used car is, it is still cannot be compared to a brand new vehicle with warranty, and we need modern, fuel efficient vehicles that will last longer on our bad roads.

Is it any wonder that for several years we had high-sulphur content fuel in our market and no one complained? The vehicles we are acquiring can take that fuel without a problem. So our import duty system is actually fighting our need for modern cars on our roads. Does the revenue we accrue from this system cater for the mess we see on our roads?

Volume tariffs will help to modernise the vehicles on our roads. Even if we don’t apply volume tariffs to cars, I would propose that we reverse the percentages applied. Newer cars should pay a lower percentage of the first purchase price, and older vehicles pay a higher percentage. The incentive to bring in new cars should be enhanced.

With a good thought-through approach to our port tariff system, we can replace our current value tariff system with a volume tariff approach without government suffering a decline in its collection targets.


The writer is the GM – Venus Allukin Ltd.)

E-mail :eoadudanso@yahoo.com)