Customs fraud costs hundred of millions of dollars

Mozambique is losing hundreds of millions of dollars a year from customs frauds, both by multinational companies and by local political parties, according to three recent reports.

International companies are depriving Mozambique of about $187 million per year, according to a study funded by the Danish government. And two studies by CIP (Public Integrity Centre, Centro de Integridade Publica) show political parties, including Frelimo, misusing their tax exempt status on a grand scale.

False invoicing costs $187 mn/y

"Fraudulent misinvoicing of trade" by big foreign companies is causing Mozambique to lose an average of $187 million per year in tax revenue - 10% of total tax revenue - according to a new report Hiding in Plain Sight: Trade Misinvoicing and the Impact of Revenue Loss in Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011. The report, published Monday, is by Global Financial Integrity and was funded by Danish Foreign Ministry.

http://www.gfintegrity.org/content/view/686/70/

The study was done by comparing a country’s reported bilateral trade statistics to that of its trading partners, and covers the nine years 2002-10. Of the five countries studied, Mozambique had the lowest level of fraudulent invoicing, but it was still substantial.

There are four types of fraud:

+ Import over-invoicing (claiming imports to be more expensive than they really are) and export under-invoicing (claims exports have less value than they really do) are both ways of reducing the official profit of the company in Mozambique. This is important particularly for mining companies, and reduce the taxes and royalties they must pay to Mozambique, and allows them to export capital. The studsy estimates this as $260 million per year.

+ Import under-invoicing (claiming imports have less value than they really do) is a way of reducing the VAT and import duties on imported goods, particularly luxury goods and cars. The study estimates this at $250 million per year for Mozambique.

+ Export over-invoicing (claiming exports have more value than they really do) is a way of capturing export credits and bonuses, and is less common in Mozambique, and appears to have happened in only two of the study years, 2008 and 2009.

Fraud occurs in two ways. Often transactions are between different parts of the same company, so they charge artificial prices to shift profits to a company registered in a low tax jurisdiction, particularly British-controlled tax havens. The other way is bribing customs officials.

Looking at customs duties, VAT, and corporation and other taxes, the study estimates that the Mozambican government loses $187 million per year.

Parties selling customs exemptions

Political parties are allowed duty free imports of vehicles and goods for their own use, without restriction. An investigation by CIP has found that most political parties, including Frelimo, are using this right to import goods commercially and then selling them on, charging only part of what would have been normal customs duties, and keeping that money for themselves.

In March CIP reported that in 2013 the Green Party imported 234 cars, PARENA 120 and the Mozambican Socialist Party (PSM) 73. None of these parties have any representatives in a local or national assembly, or any visible political presence.  (http://bit.ly/1h6Mkwq; News reports & clipping 247, 26 March)

Tuesday, CIP reported on Frelimo, and its large scale duty-free imports, such as 2291 Chinese motorcycles in 2012 and 2013 and 7009 Chinese freezers in the past two years, some of which were sold through the shops of Rassul Trading. Frelimo also imported 5000 car tyres just when it was banning retreaded tyres. http://www.cip.org.mz/article.asp?lang=&sub=iafl&docno=303

Source: MOZAMBIQUE 255 News reports & clippings
14.05.2014