Rice importers stealing millions from Government

Investigations by the B&FT have revealed that large rice importers in the country are cheating and making away with over US$21million annually – mainly through under-declaration and misclassification of products – at a time government needs more revenue to carry out its projects.

Documents sighted by the B&FT show that the major importers — which control about 60-70 percent of rice imports into the country — together with other minor importers are all complicit in this corrupt act.

In the case of under-declaration or under-invoicing, the importers are able to beat the system by declaring a price lower than how much the rice was bought at source.

For example, in June 2017 for a quantity of 500MT 1kg bagged fragrant rice bought by one of the importers in Vietnam at US$572 and valued at US$286,000, the importer under-declared it at US$440 – giving it a total value of US$220,000.

This means that Ghana Customs can only calculate an official duty rate of 45.9 percent on US$220,000 rather than on US$286,000. So, rather than pay a duty of US$131,000 the company shortchanged government by paying US$100,980; thereby escaping with US$30,294 in just one consignment of 500MT 1kg bagged fragrant rice.

The same situation happened with the 5kg, 4.5kg, 25kg and 50kg bags of rice in various quantities imported by the same company during June 2017 alone. B&FT’s calculations show that the company made away with over US$711,000 from this dubious activity. Assuming the situation remained like this throughout the year, then just one importer swindled the revenue authorities of more than US$8.5million in 2017.

Mis-classifications

Another corrupt strategy that some of the rice importers are using is misclassification. Under this practice, importers do not state the right classification of the rice in order to dodge taxes.

For example, if a company brings in long-grain fragrant rice it is able to declare at Customs that the product is white rice – which attracts lower duties than the fragrant rice.

The documents show that in April and May this year one of the largest importers brought fragrance rice into the country but declared it as white rice at the Tema Port.

The effect of this is that it gives the companies involved undue advantage of selling the rice on the local market cheaper than its competitors paying the right duties, thereby making them uncompetitive.

The analysis made by this paper shows government loses on average US$21million annually from these under-declaration and misclassification practices.

Customs partly to blame

B&FT’s investigations further revealed that the companies are able to carry out this corrupt activity (under-declaration) by taking advantage of lapses in Ghana Customs’ system.

Customs has a benchmark price for some products imported into the country—of which rice is part. Under the benchmark pricing, per the documents sighted, all fragrant rice imported into the country is priced at US$440 irrespective of the bag’s size—be it 1kg or 50kg. Meanwhile, all the various quantities are bought at different prices at source: meaning different duties should be calculated for each bag-size.

Customs, however, require importers to declare the right prices they bought the products for at source. For example, even though Customs has set a benchmark price of US$440 for a quantity of 500 1kg fragrant rice, importers are expected to declare the original price of US$572 they paid in Vietnam.

But this is not the case, as some of the importers are able to use their sister-companies in other countries to declare prices below the original and present invoices to that effect to Ghana Customs.

Customs can address this by simply demanding from importers the original declaration forms at source, in addition to all other relevant documents, for calculation of duties.

Local industry in danger

The situation presented in this story puts the local industry in danger, as efforts by government to boost their capacity will yield no results if the big players continue to make away with millions through these corrupt practices.

The country’s current rice consumption is about 1.8 million tonnes, with local rice production less than 600,000 tonnes. The Ministry of Agriculture is expecting rice production to hit about 630,000 tonnes by end of the year.

But with the big importers cheating the system, the local industry’s prospects for competing with them remain very dim indeed.

Effects on revenue

The government has been battling with revenue shortfalls ever since it assumed power in January 2017. Total Revenue and Grants for the period amounted to GH¢41.4million (20.2% of GDP) – 3.7 percent lower than the budget target of GH¢43million (21.3% of GDP). Overall, the outturn for Total Revenue and Grants constituted 96.3 percent of the target.

The revenue shortfall is mainly attributed to lower-than-anticipated non-oil tax revenues, which alone accounted for about 55 percent of the total revenue shortfall. The shortfall in expected receipts from international trade taxes alone explains about 76 percent of the total revenue shortfall, which resulted mainly from the non-realisation of GH¢1billion in anticipated receipts from the limitation of import exemptions.

If government is able to address these business malpractices among the rice importers by blocking all the leakages, it will be able to add at least US$21million to the country’s revenue.