We are a firm of Customs consultants and we provide advice to a wide range of companies, all of whom import products or components from outside of the EU. Our business brings us, naturally, into contact with HM Customs & Excise on a daily basis. We are writing to you in response to the Treasury Sub-committee request for submissions to be made by 1st October 1999.

  The point should be made now that our consultancy relates to Customs matters as affecting importers and exporters. The Treasury paper indicates that the study is concerned more with VAT and Excise compliance as opposed to Customs duty on imported goods. Nevertheless, we have some points to make in response to the Treasury paper.

1.  THE THREE DEPARTMENTS OF HM CUSTOMS & EXCISE

  The first thing that the Committee must recognise is that there are three Customs & Excise Departments administering three different taxes (hereafter referred to as Customs, Excise and VAT). There are vast differences between the administration, collection, enforcement procedures, compliance and legal statutes affecting each Department. This makes it very difficult for the Departments of HM Customs & Excise to work under one umbrella and closer co-operation and a more integrated approach to trade and the public are issues that are constantly under examination. In our opinion a total merger with the Inland Revenue would not work although there may be mertis in certain Departments merging and this should be considered in respect of VAT and Excise but not Customs.

2.  CUSTOMS

  Customs is a transaction tax (like VAT and Excise) but its total legislative base come from Brussels which receives most of the tax collected (unlike VAT and Excise). Customs duties are not levied to raise revenue for government but to protect industry and Customs and Officers are not tax collectors but protectors of the health and safety of citizens. Certain VAT and Excise requirements form part of the role of Customs but hereafter this paper is only concerned with Customs.

3.  ENCOURAGING COMPLIANCE

  Customs do little to encourage compliance (although there are some current initiatives for new traders) and this is no doubt because they have few resources—most funding in the compliance area goes into VAT (note, in our experience, Excise compliance is abysmal!). There is little or no training of Customs officers themselves so it is not possible for them to teach the trading community. Another problem is that Customs deal with unqualified intermediaries (ie freight agents) who the importers and exporters often think are qualified! Customs had a great chance to right this with Customs Freight Simplified Procedures, CFSP, which was developed as an electronic reporting system which would link importers direct to Customs and allow greater opportunity for education and compliance. However Customs have allowed third parties, such as express couriers, to control the systems and this opportunity has, to a large extent, been lost.

4.  ENFORCING COMPLIANCE

  Nuts and Sledgehammers are the words that come to mind! Customs should have its own sensible penal system enforced by its own officers. An investigating officer should know that different treatment should be accorded to a person who has incorrectly classified his goods at importation (or whose freight agent has done so) resulting in payment of less duty than that legally due: he should not have his premises raided, business stopped, belongs searched and employees frightened out of their wits in the same way as happens, possibly quite rightly, when a restaurant is suppressing its turnover and VAT payments.

5.  TACKLING THE SHADOW ECONOMY

  We do not believe there is a "shadow economy" in Customs. The biggest issue of concern for importers is the enforcement of the trade agreements that the EU has with many developing countries—the criminals, generally, are the exporters overseas who cheat the system by declaring that the goods comply with the rules of origin entitling the goods to preferential duty treatment upon importation into the UK. Instead of penalising the innocent importers in these cases, the only fair recourse is to nullify such agreements if the countries overseas cannot police them properly. But this is an issue which can only be resolved by Brussels, not UK Customs & Excise.

6.  IMPACT OF NON-COMPLIANCE ON COMPLIANT TRADERS

  Non-Compliance by importers and exporters, eg misdescribing goods to avoid licensing or quota controls, affects compliant traders in so far as the non-compliant traders gain a competitive business advantage by selling goods which are restricted. The extent of this type of trade is not known but, in any case, cannot be considered on a UK basis only as, particularly with import restrictions, the relevant legislation applies across the EU members states; each Customs administration interprets the laws differently, applies different procedures and deals with compliance in its own manner.

7.  POTENTIAL FOR CLOSER WORKING WITH THE INLAND REVENUE

  I refer to the comments in paragraph 1 above. In Customs, the only area of synergy is in relation to transfer pricing where both for Customs and for Inland Revenue purposes, companies trading with related parties overseas must make certain declarations in relation to the pricing policies between them. In this area, there are already certain initiatives for exchanging information and working together between the two government departments.

  To conclude, we hope you will recognise that HM Customs & Excise is not one organisation and that the Customs area, affecting importers and exporters, had different objectives and needs. We hope that you find these comments useful and if we can of further assistance, eg in providing verbal evidence, we would be happy to do so.

29 September 1999