Duty, Relief and Exemption Control

Adrien Goorman is an independent customs administration consultant, former Deputy Division Chief, Tax Administration Division of the Fiscal Affairs Department of the International Monetary Fund. This chapter has benefited greatly from cooperation with the Inter-American Development Bank.

This chapter deals with two aspects of customs administration that are of considerable economic, fiscal, and administrative importance-administration and control of duty relief regimes for temporarily imported goods, and administration and control of all other duty exemptions.

Duty relief refers to the customs regimes under which goods are imported with suspension of duty payment pending their re-exportation. Such duty relief might be for temporary admission for inward processing, manufacturing under bond, export processing zones, temporary admission for re-exportation in the same state, customs warehousing, and transit. It also refers to the regime under which duties paid on importation are refunded when the goods are re-exported (drawback).1

Exemption control refers to the mechanisms used by customs to administer and monitor full or partial duty exemptions unrelated to exportation

BOX 10.1 Duty Relief and Exemption Regimes

Duty relief concerns the exemption from duties and taxes on temporary imported goods or, if duties and taxes were paid on their importation, the refund of these duties and taxes upon reexportation.

Goods imported for re-exportation after processing Temporary admission for inward processing (TAP) Manufacturing under bond (MUB) Drawback Export processing zone (EPZ) Warehousing, temporary admission, and transit Customs warehousing Temporary admission for exportation in the same state Transit Exemption involves importation under full or partial waiver of import duties for reasons unrelated to exportation or re-exportation. These exemptions exist for a variety of government policy objectives or result from international conventions and agreements.

International conventions Embassies and international organizations Government social and economic objectives Government imports Fiscal incentives to investment Foreign financed projects Relief goods Charitable, religious, educational, cultural, and other social purposes Noncommercial imports Migrant workers, persons settling or resettling in the country Baggage allowances Samples of no commercial value Inherited goods, gifts, trophies, medals, prizes, and so forth Other noncommercial imports.

Source: Author.

or re-exportation. The main exemption categories concern investment incentives; imports for the government, foreign-financed projects, and diplomatic representations; imports of relief goods; and imports for institutions with charitable, cultural, educational, or religious purposes.

Experience shows that many developing countries have difficulty properly administering and monitoring duty relief regimes and exemption regimes. This has resulted in abuse, fraud, and revenue leakage. In the absence of smoothly operating duty relief mechanisms, export manufacturers have to produce at higher cost than would be the case if they had full and easy access to production inputs at world prices. Therefore, their competitiveness in export markets is impaired.

The chapter gives an overview of the main duty relief and exemption regimes, and summarizes their economic rationale, as well as the main requirements for effective administration. The chapter also reviews the experiences relating to the implementation of various systems in a number of countries and provides guidelines for best practice. The first section reviews the regimes for duty relief for inward processing. The second section concentrates on duty relief for goods temporarily imported for reasons other than processing. The third section deals with economic and administrative aspects of outright exemptions. The final section summarizes the operational conclusions and guidelines. Annex 10.A provides a checklist for duty relief and exemption control.

A systematic classification of the main duty relief and exemption regimes in operation around the world is presented in box 10.1.

Duty Relief for Inward Processing

This section first reviews the economic rationale for duty relief for inward processing, identifies the main approaches to duty relief, discusses administrative issues relevant to all duty relief systems, then reviews administrative aspects of the main systems one by one.2

Economic Rationale

Governments levy duties on the importation of goods to collect fiscal revenue or protect industrial activity. When the inputs are imported for the manufacture of export products, the duties paid on them increase the cost of pr...

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