Before I identify the extent to which the Ethiopian revenue and customs authority move from a gatekeeper style of compliance management to a more risk-based management style, it is necessary to coat the key objectives of the authority. The key objectives of the authority are commonly facilitation, control and then achieving an appropriate balance between trade facilitation activities and regulatory controls. Thus, the authority has been implementing different risk- based management styles to apply efficient and effective controls in order to fulfill the responsibility to collect revenue, implement trade policy ,safeguard the public ,manage the increasing international trade and tourism, reduce custom personnel and offer trade facilitation to legitimate traders, travelers and carries. The ultimate objectives of the authority is creating compliance and voluntary tax payer and collecting tax and duty from the economy by applying legitimate and modern tax system. If so, the authority believes that it is must to have techniques styles which are- risk based compliance management rather than gatekeeper style of compliance management to achieve the above objectives of the authority effectively and efficiently.
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Thus, the authority is applying different risk based compliance management techniques from time to time. Especially, since the authority introduced business process re-engineering to reform its controlling techniques from gatekeeper compliance management to risk based compliance management styles. Then, it necessary to define why need manage risk? The concept of organizational risk refers to the possibilities of events and activities occurring that may prevent an organization from achieving its objectives. Such as providing the international trading community with an appropriate level of facilitation, and ensure compliance with the organization’s laws such as licensing requirements , valuation provisions ,rules of origin duty exemption regimes, trade restrictions and security regulations, as well as the potential failure to facilitate international trade. Thus, like any other organization, the authority need to manage its risks. This requires the systematic application of management procedures designed to reduce those risks to ensure that its objectives are achieved as efficiently and effectively as possible. This leads the authority to reform its management styles to risk- based compliance management style from gatekeeper compliance management styles.
As a whole, the authority reforms all most all its managing styles from the traditional gatekeeper management style to risk based compliance management styles. The authority’s managing styles are characterized by identification of potential risks with resources being directed towards high risk areas and minimal intervention in similarly identified low risk areas. Relatively the pre business process reengineering reformation, authority’s managing style was characterized by indiscriminate custom intervention or a regime of 100% checks. Similarly, payments of duties and other taxes are a pre requisite for customs clearance and such clearance is invariably withheld until all formalities and real-time transaction checks completed. This compliance managing style was a gatekeeper managing style in which the authority was using as managing style for so many times till the authority internalized business process reengineering to all its organizational structure and administration style as a whole.
The Authority has been changing it’s a compliance management styles to risk based management from the traditional 100 percent document check and physical examination except with too much rare random and arbitrary of the authority intervention which could not characterized the authorities a compliance management style to be gatekeeper style. Thus, it is possible to estimate the authority to what extent does it move from gatekeeper style of compliance management to a more risk based management style.
The authority internalized different new risk based management approaches to its managing style for its effective and efficient objective achievement. Before I define the different new approaches applied by the authority, it is necessary to define the two styles of compliance management. The first one is the risk based compliance management style which characterized by the identification of potential risks, with recourses being directed towards high risk area and minimal intervention in similarly identified low risk areas in order to deliver legitimate, moderate and fast service to traders, collect the revenue effectively and efficiently, facilitate the transaction and safeguarded the public. Thus, such regimes adopt strategies that break the nexus between physical control over goods and a trader’s revenue liability, and permit customs clearance to be guaranteed prior to the arrival of ergo. Whereas the gate keeper style of compliance management style is characterized by indiscriminate customs intervention or a regime of 100 percent cheek. Similarly payment of duties and other taxes is a pre request for customs clearance under the gate keeper model and such Clearance is invariably with held until all
Formalities and real-time transaction checks are completed. If such style of compliance management is used as a key techniques of compliance management in the current time, in which the trade volume and complexity is increasing rapidly, the authority could not be efficient and effective in different purposes, such as trade facilitation, delivery legitimate and moderate client service, safeguard the public and collection of revenue. This is the key reason to the authority to reform its compliance management style from gatekeeper compliance management style to risk based management style.
From the new approaches of compliance management applied by the authority some are listed below.
A. Self assessment: – in which the value add tax (vat) registered trader declare its input tax and output tax to the authority monthly In a way that the trader keeps its own financial recorders during his /her transaction and then declared to the authority in order to pay if there is tax payable and to forward credit or refund if there is credit according to the tax and duty regulations and laws of the authority. Here the focused point is not the self declaring but the system by itself is risk based compliance management style because if the authority is uncertain with some points of the trader’s declaration or if there are a potential risks with trader, the authority assure the uncertainty or risk through Audit by the authority’s auditors.
If we look this against the risk based compliance management pyramid it leads us to the compliance assessment that could help the authority to facilitate the day to day transaction of the traders and the need to control the traders and the trade itself, and also it could identify information of compliance and non compliance being the authority gather different financial recordings from the trader as a result this could help the authority to select potential risks, low risks and compliance or non-compliance profiles. The other point is that the authority could investigate (audit) the industry, traders, manufacturers, importers and whole salers when they are suspected.
B, Applicable dates for determination of duties and taxes:-The applicable date for determining customer’s duties and taxes is as follow:-
For goods imported: – the date when the customers declaration is accepted. This by itself could assure pre arrival assessment, clearance and fast release of imported goods during their arrival in custom control which could be classified in to risk – based compliance management style because the authority could intervene if there is any potential risks with arrived goods before release is approved.
For goods carried by passengers: – the date of customs clearance. This could compare with the risk based compliance management pyramid it leads us to client service in which the client could get fast and immediate service by the authority accompanied by cooperation and consultation of the authority to the client.
The authority expected to deliver fast and legitimate client services. But it has not to be risky to the authority revenue collection and the public security. In such cases the authority gives the service based on the risk level of the imported goods by the passenger.
C, Administrative settlement of custom offences:- The authority settle custom offences, other than those relating to contraband or involving above 25% or birr 500,000 of the payable duties and taxes, administratively by taking due account on the nature of the offences and their impacts on the interests of the public and government. According to this, custom offences administrative settlement the authority keeps the importer profile to identify the intention of the offences by the importer if it is deliberate or not in a way that risk based management to identify compliance and non-compliance to enforce non-compliance using administrative discretion. According the profile of importer’s offences, the authority levies different administrative actions starting from persuasion- formal warning-penalty with regard their difficulties, offence times and if or not the importer committed the offence deliberately.
The administrative settlement of custom offence in the authority start to contribute a remarkable result to the import and export facilitation of the country, revenue collection of the government and prepare a profile that could help to identify compliance and non-compliance.
An appropriate legislative frame work is an essential element of any regulatory regime, because the primary role of custom is to ensure compliance with the laws as identified in the above pages regardless of the compliance management approach that it is supporting, the legislative frame work must provide the necessary business law for the achievement of the range administration has chosen to adopt. For ex sample, an appropriate bases in law mast exist to enable customs to break nexus between its physical control over internationally trading goods and revenue liability (that is, custom duty and other taxes) such goods may attract. This does not necessary imply, however, that such differentiation must be explicitly addressed in relevant statutory provisions. For example, if legislation itself is silent on the relationship between customs control over cargo and revenue liability sufficient scope is likely to exist for administratively flexible solutions to be implemented.
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underpinned by relevant legal provisions , the various elements of administrative and risk management frame work employed by customs essentially reflect the underlying style of compliance management being pursued by the administration with an increasing use of risk management principles as the administration move away from traditional, risk averse gatekeeper style of compliance management to more risk based approach. The available technological frame work represents an enabler that, while not critical to the achievements of a risk management style, service to significantly enhance an administration ability to adopt such styles. Thus, the authority applies a technological information system centrally to reform the traditional gatekeeper style of compliance management which the legislative base provides for a ” one size fits all ” approach compliance management to a risk based management style in which the legislative base provides for a flexible and tailored solutions to enable relevant risk management administrative strategies to be implemented. The legislative base recognizes responsibilities for both government and the trading community in achieving regulatory compliance. This could provide logical frame work for demonstrating how various types of risk based strategies, including non enforcement strategies such as self assessment, may be used to effectively manage compliance. Fundamentally to this approach is the need to provide the commercial sector with the ability to comply with custom requirements. This involves establishing an effective legislative base and an appropriate range of client service strategies,(including effective guidelines).Such strategies are necessary to provide the commercial sector with the means to achieve certainty and clarity in assessing liabilities and entitlement. This is the reason why the authority is reforming its means of communication electronically from the traditional way of communication. Thus, this could also recognize respective responsibilities of government and industry of the country and sanctions for non compliance. From the technologies that the authority internalized to its organizational structure is ” tin integration system ” which is the one and the moderate technological advancement that could help the authority to give the tin number to all registered clients similarly and use to have different supporting information of the trader, importers, whole seller, enterprises and other business entities country wide. This could minimize different level of risk that could appear in the gatekeeper compliance management style relatively. Such technological advancement provides the trading community with electronic as well as paper based reporting, storage and authentication. Such previsions could enable regulators to relay on commercially generated data to the greatest extent possible. As well as appropriate communications and information technology to provide for automated processing and clearance arrangements. Regulators could achieve maximum integration with commercial system of the country that the authority needs to facilitate transactions as much as possible.
The authority is applying different new approach of compliance management style to its operational and administrative structure to achieve the above specified key objectives of the authority. It could be said that the authority is getting a point full results by applying the above specified new approach of compliance management that aimed to reform traditional gatekeeper style of compliance management to risk based management style is almost organizational wide working approach for different purposes supposed by the authority . Even though some drawbacks are occurring with applying the new approach of compliance management, the authority is working day to day to reform its compliance management approach as much as possible. From this it is possible to estimate to what extent does the authority moved to adopt risk based compliance management styles and applying different new approach of compliance management style through organizational reformation.
To conclude, in assessing the level of compliance, custom should encounter two situations: compliance and non compliance. The non compliance spectrum ranges from innocent mistakes blatant fraud. If the errors near to the fraudulent end of the spectrum, some form of sanction will need to apply, including administrating penalties or in more several cases, prosecution and license revocation. Before determining the need for or nature of, a sanction, however, it is important to identify the true nature of the risk by establishing why the error has occurred. For example, the error may be the result of a control problem within the company due to flawed systems and procedures or it may be the result of a deliberate attempt to defraud. It also may be that the relevant legislation is unclear or the administrative requirements are ambiguous. The type of mitigation strategies that custom should employe to ensure future compliance will depend on the nature of the identified risk. Unless the error is fraud to be international, it may be appropriate to address systematic problems within the company or to provide the company with advice on compliance issue or provide formal clarification of the law and regulations of the authority through binding rulings or other means. In this regard it is important to recognize that different solutions will be required to address honest mistakes on the one hand, and deliberate attempts to evade duty on the other. Effective risk management is central to modern customs operations, and provides the means to achieve an appropriate balance between trade facilitation and regulatory control.
To manage risk effectively, the authority’s administration must gain a clear understanding of the nature of risks to the achievement of its objectives and device practical methods of mitigation those risks. Finally, there needs to be a demonstrated commitment from the highest level of the organization structure to support the transition to risk based approach compliance management.
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