Sri Lanka Customs, Customs House, Colombo.11

2010

Sri Lanka Customs, Customs House ,

Colombo.11

Annual Performance Report 2010

Sri Lanka Customs

As at 31.12.2010

PRINCIPAL OFFICIALS

Mrs. W. Sudharma Karunaratne Director General of Customs Mr. Duminda Jayarathne Additional Director General of Customs (Human Resources) Mr. P.A. Dias Additional Director General of Customs (Corporate) Mr. W.A. Chandradasa Additional Director General of Customs (Revenue & Services) Mr. Z.A.M. Jazeel Additional Director General of Customs (Enforcement) Mr. W.L.D.R.A. Kumarathilake Director of Customs (Human Resource Management) Mr. R. Dharmapala Director of Customs (Human Resources Development) Mrs. K. Gunawardena Director of Customs (Employee Services) Mr. R.P.D.T. Seneviratne Director of Customs (Policy, Planning and Research) Mr. N.K. Sivakumar Director of Customs (ICT) Mr. P.W. Amaradivakara Director of Customs (Central Valuation) Mr. A. Kulendran Director of Customs (Specialized Services) Mr. Asanka Dayaratne Director of Customs (Logistics) Mr. J.H. Kodikara Director of Customs (Declarations) Mr. B.J.P. Perera Director of Customs (Industries and Services) Mr. S.D.S. Gunatunga Director of Customs (Cargo Examinations)

iii

Mr. M. Puviharan Director of Customs (Passenger Services) Mr. A.H.K.J. Chandrasiri Director of Customs (Revenue & Services – Katunayake) Mr. S.D. Udawatta Director of Customs (Passenger Services, Katunayake) Mr. K.K. Balachandra Director of Customs (Revenue & Services-Provincial) Mr. K.L.G.T. Perera Director of Customs (Preventive) Mr. P. Yoganathan Director of Customs (Social Protection) Mr. S.Rajendran Director of Customs (Post Clearance Audit) Mr. D.A.I. Daranagama Director of Customs (Central Investigations) Mr. C. Wickramanayake Director of Customs (Legal Affairs) Mr. C.N. Rajaratnam Director of Customs (Central Intelligence) Mr. K. Ranjan Director of Customs (Special Tasks and Vigilance) Mr. Saman Fernando Director of Customs (Appeals) Mr. M.K.S.D. Alwis Director (Finance) Mrs. K.D.R. Olga Director (Systems and Procedures Compliance Audit) Mr. W.B. Weheragoda Director (Excise) Mr. Cyril Herath Deputy Director (Statistics)

DC Administration

DD Statistics

DC ADP

DC Air Cargo

DC BIA

DC Baggage and Project - I Narcotics DC Bonds

DC CCED

DC Exports

DC HRD

DIRECTOR D Finance GENERAL OF CUSTOMS DC Imports and Tariff

DDC Legal Affairs

DC PP & R

DC Preventive

DDC Central Invest igation

DC Valuation

DDC Central Intelligence

ADC Revenue Task Force

Project - II D/ Excise (Specia l) )Provisions)

Organization structure of Sri Lanka Customs as at Dec 31, 2009 v

DC – Preventive DC – Social Protection ADGC DC – Post-clearance Audit (Enforcement) DC – Central Investigations DC – Legal Affairs DC – Central Intelligence

DC – Declarations DC – Industries and Services DC – Cargo Examinations ADGC (Revenue & DC – Passenger Services (Colombo) Services) DC – Passenger Services (Katunayaka) DC – Revenue & Services (Provincial) DC – Revenue & Services (BIA - Katunayaka)

DIRECTOR GENERAL OF DC – Policy, Planning & Research CUSTOMS DC – Information & Communication Technology ADGC (C orporate) DC – Central Valuation DC – Specialized Services DC – Logistics

DC – H uman Resource Management ADGC (Human DC – Human Resource Development Resource) DC – Employee Services

D – Systems & Procedure Compliance Audit

D – Finance

DC – Appeals

DC – Special Tasks & Vigilance

Organization Structure of Sri Lanka Customs as at December 31, 2010

PART ONE

Overall Performance 2012012010201 000

1. Introduction

In the drive towards making Sri Lanka the “Wonder of Asia,” Sri Lanka Customs has a major role to play in facilitating imports and exports clearance processes to ease doing business in order to attract investors, to support speedy completion of country’s development drives, and to welcome tourism, while ensuring sufficient revenue flow to the government outlays and ensuring social safety at large by looking into socio-economic, environmental, and cultural aspects.

Vision :

To be recognized as a “Best Practice” Customs Administration that enhances the security and prosperity of Sri Lanka.

Mission :

We are committed to enforce and enhance compliance of the Customs law and related laws concerning revenue, social and

environmental protection whilst facilitating legitimate trade, travel

and industry with due recognition to national efforts and international Customs standards.

2. Sri Lanka Customs in the National Economy

In the country’s major developmental plan in becoming the central hub in linking the East and the West, and in developing as a multifaceted five-pronged hub encompassing the areas of (1) naval, (2) aviation, (3) commercial, (4) energy and (5) knowledge, Sri Lanka Customs is one of the government organizations vital in transforming the economy.

The Department is supporting the government to achieve the mid-term fiscal and economic framework targets set to contain budget deficit at 5 per cent, keep up growth rate over 8 per cent and double the per capita income over US $ 4,000 by 2014. Sri Lanka Customs, being the largest single contributor to the government revenue, performed a significant role in this regard in 2010. It helped the government to consolidate fiscal sector which in turn assisted to graduate Sri Lanka to the level of “a strong middle income country” in 2010 as listed by the International Monetary Fund (IMF).

The Department is ready to be in the frontier bearing responsibility of raising Sri Lanka to the next layer of the income category through holistic approach for fiscal consolidation and to ease doing business in Sri Lanka.

3. Performance in the year 2010 - the year of transition

The year 2010 began with a landmark transformation of the Customs Administration under the Customs Modernization Programme supported by the Fiscal Management Reform Project (FMRP) of the Ministry of Finance and Planning to refresh the employees who had been stagnated over a long period with a sense of career development, professionalism and integrity, as the first step towards ensuring more effective and efficient service for the tax payers, and thereby maximize the collection of revenue due to the State while achieving social protection goals.

As a result of those steps taken in rejuvenating the work force and designing a more systematic organizational structure which was introduced under four main areas – namely, revenue generation, enforcement, trade facilitation (Corporate) and human resources development, the Sri Lanka Customs in the year 2010 showed a significant contribution in the areas of revenue collection, human resources development, social protection, infrastructure development, systems development, trade facilitation, development project facilitation and fundamental preparation for new developments of the country including the current economic environment emerging in the post-war Northern and Eastern provinces, and shipping and aviation expansions.

3.1 Performance in Revenue Collection

Sri Lanka Customs is entrusted with the collection of all the taxes imposed on the international trade. Such taxes administered during the year 2010 were Import Duty, Export Duty, Import and Export Cesses and all other levies payable on imports, such as Port and Airport Development Levy (PAL), Regional Infrastructure Development Levy (RIDL), Excise (Special Provisions) Duty and Special Commodity Levy (SCL), along with Value Added Tax (VAT), Nation Building Tax (NBT), and Social Responsibility Levy (SRL).

The changes introduced by the government during the year 2010 in respect of the rates and the scope of the relevant taxes administered by Sri Lanka Customs with a view to exploit the gradual rebounding of external trade for the country’s long term economic growth, produced substantial results for the revenue collection by the Department during that year.

The major policy changes affecting the collection of revenue were – • Total Customs Duty waiver granted on petrol and diesel; • Reduction of tax rate on milk powder from Rs. 100 per kg to Rs. 50 per kg.; • the simplification measures introduced in June including the introduction of four band Customs Duty structure (0, 5, 15, and 30 per cent) in place of the five band structure (0, 2.5, 6, 15 and 28 per cent); • Abolition of 15 per cent Surcharge; • Reduction of tax rate on motor vehicles and certain categories of electric items and their parts, and • Simplification of the tax formulas used by Sri Lanka Customs.

The significant impact of those policy changes affected the normal relationship of the imports and tax collection of the Department in 2010, as shown in Chart 1. It is noteworthy to mention here that the low tax regime introduced in June 2010 boosted tax collection by 38

per cent in July compared to the tax collection in June while total imports increased by 6 per cent. That was not only a short term spring, but also an impetus to continue during the remaining 5 months in 2010, increasing the monthly average tax collection (from January 2009 to June 2010) to over Rs. 37 billion from its stagnated level of Rs. 24 billion.

Chart 1: Trends of Imports and Taxes during 2009 to 2010

Due to Import of Petroleum

Due to Tax rate reduction

Despite the growth oriented tax measures introduced including down-scaling of tax rates and the scope directly affecting the revenue generated, revenue collected in the year 2010 by Sri Lanka Customs has shown a remarkable increase of 19.4 per cent (the total collection being Rs. 380.9 billion as compared to Rs. 319 billion collected in 2009 1). This increased rate in 2010 was further important because year 2010 was the bounce-back year (in which the pace of increase of tax collection was higher than the pace of increase of imports) after year 2005 wherein many changes had been introduced (such as imposition of Cesses on non essential imports) to broaden the scope of taxes. It is noteworthy to report that the increase in 2010 was nearly twice of the average growth rate of 11.4 per cent recorded during 2005 – 2009.

The achievement of this year, however, has to be considered in the light of the “Reduced-rate tax regime.” Although the total imports in 2010 was increased by 32 per cent over 2009, it is important to note that the major share of that increase resulted from such low tax-rate items like petroleum, motor vehicles, transport equipment (mainly aircrafts), fertilizer and essential food items, the total of which amounted to around 45 per cent of the total imports. It is further important because that sector had grown by 46 per cent from 2009.

This revenue performance helped the Department to achieve the fiscal target of Rs. 381.3 billion assigned by the Ministry of Finance and Planning for the year 2010. The observed downward trend in the ratio of actual revenue to the estimated revenue for the last few years was reversed with the performance of the year as depicted in the Chart 2.

1The rate of increase is 32.7 per cent if Rs. 32 billion accounted as Vote Debits is taken out from the total in 2009.

Chart 2: Actual Revenue Vs Estimated Revenue from 2005 - 2010

Out of the total revenue collection of the Department, Rs. 340.3 billion was collected as taxes assigned to the Department together with the taxes collected as an agency function, and Rs. 40.7 billion was collected under the Excise (Special Provisions) Act. The Excise (Special Provisions) tax collection alone was enough to exceed the assigned target by 1 per cent while the rest of the tax collection was almost equivalent to 100 per cent of the estimated figure for the year 2010 (Chart 3).

Chart 3: Comparison of Actual with Estimated Revenue

Rs.

Chart 4: Composition of Total Tax collected in 2010

Excise 24%

Chart 4 shows the composition of total tax collected by the Department in 2010. It is observed that VAT contributed 26 per cent to the total tax collection, followed by the Excise (Special Provisions) Duty and Import Duty contributing by 24 per cent and 17 per cent respectively. However, the same data for the year 2009 shows that the contribution by VAT, Excise Duty and Import Duty had been 21 per cent, 20 per cent and 25 per cent respectively. Higher contributions from VAT and Excise Duty in 2010 can be attributed mainly to the increase in motor vehicle imports.

Chart 5: Comparison of Annual Chart 6: Monthly Revenue collection

Revenue collection from Motor Vehicles from Motor Vehicles in 2010 (Rs Mn.)

The general observation on revenue collection as far as the Chapter-wise collection is concerned is that in the past few years, 80 per cent of revenue collected by the Department had resulted from 20 Chapters out of the 97 Chapters in the tariff; Chapter 87 assigned for motor vehicles alone yields about 10-15 per cent but showed a downward trend from June 2007 to 2010. However, the tax rate reductions timely introduced for motor vehicles in June 2010 to arrest the downward trend had increased the contribution from motor vehicle to its ever recorded highest level of 25 per cent of the total tax collection 2 (Chart 5). As illustrated in Chart 6, the average monthly tax collection had increased to Rs. 10.4 billion for the last 6 months of this year (generating a monthly average of Rs. 6.5 billion for the year 2010) as compared to monthly average of Rs. 1.4 billion in 2009.

As shown in Chart 7a, 62 per cent of total revenue in 2010 was resulted from 15 commodities out of which motor cars accounted for 21 per cent of the total tax collection. Transport vehicles, motor bicycles and petrol and diesel contributed by 7, 4 and 19 per cent respectively 3. It is worth mentioning that those items became the highest revenue-earners mainly because of the quantities imported and the related values and not because of their assigned tax rates, as they were either in reduced tax regime or in duty waiver regime in the year of 2010 (Chart 7b). Further, wheat grain, milk powder and cement were significant in terms of tax collection due to their high volume of imports and resulting high total of value, whereas alcohol and edible oil were significant due to higher duty rates assigned on them.

2 As per Motor Vehicle Division data 3 As per ICT Division data

Chart 7a: Top 15 Revenue Earning Commodities (% to Total Revenue in 2010)

Chart 7b: Commodities recorded Highest Import Value (% to Total Imports in 2010)

3.2 Performance in Trade and Economic Growth Facilitation

The amount of revenue collected alone does not speak of the total contribution of the Department for the betterment of the nation. The amount of the documents processed by different divisions of the Department, as an example, evidences how Sri Lanka Customs was structured and had devoted both human and physical resources to yield the maximum gain from the external trade as expected by the government as well as the business community.

Sri Lanka Customs processed 1,006,498 Customs Declarations (CusDecs) in 2010 as compared to 863,793 in 2009, an increase of 16.5 per cent. Out of the total CusDecs processed in 2010, 413,021 export CusDecs reflecting an increase of 12 per cent over 2009, while a 23 per cent increase recorded in import CusDecs amounting to 593,477. As Chart 8 shows, Long Room where 90 per cent of the revenue was generated - processed about 30 per cent of the total import CusDecs while the rest of the CusDecs were processed in low or non revenue generating sectors such as imports for BOI and Bonding. Export CusDec processing – which is not a revenue generation activity - mainly dealt with BOI related CusDecs, and only about 20 per cent of those CusDecs was processed in the Export Office for non-BOI exports (Chart 9).

Chart 8: Import CusDecs processed in Different Divisions (%)

Chart 9: Export CusDecs processed in Different Divisions (%)

The total containers passed through the Customs gates were 300,338 in 2010, a 27 per cent growth over 2009. The amount of containers examined in Grayline I and II Yards where high and medium risk containers are sent to, decreased to 16 per cent in 2010 from 24 per cent in 2009, whereas low risk containers examinations at RCT increased to 63 per cent from 53 per cent (Chart 10) owing to deploying improved risk assessment criteria to decide the need for psychical examination of containers, and deploying advanced electronic equipment for non-intrusive examinations. This clearly showed the Department’s orientation towards trade facilitation and minimizing time taken for examination of cargo to a greater extent.

Chart 10: Containers examined in Different Examinations Yards (%)

To meet its policy of providing concessions for essential food items, secure funds for mega development projects for their speedy completion and meeting its commitment for international trade liberalization, the State had to forego Rs. 94 billion from revenue in the year 2010 (Table 1). That was nearly 180 per cent of the revenue foregone in the year of 2009. It is significant to note that out of the revenue foregone in the year 2010, the share of revenue foregone for development projects was 14 per cent higher than that of the year 2009. It is clear that Sri Lanka Customs contributes a considerable time and resources for fulfillment of the government’s economic objectives on growth and welfare of the nation.

Table 1: Total Taxes Foregone (2009 - 2010)

Rs: Millions

2009 2010 Food Items 8,265 14,084 Free Trade Agreements 6,595 11,652

Petroleum Products 2,348 30,811 Mega Projects 2,268 2,577 Others 12,970 35,207

Total 32,446 94,332

Initial steps were taken throughout the year 2010 to adopt Information Technology based systems for documents processing to enhance efficiency and effectiveness and to select cargo for rapid clearance, thereby greatly facilitating cargo clearance for the benefit of genuine importers. “ ASyCuDa -World” (Automated System for Customs Data) version - the new version replacing the existing software programme, enables Sri Lanka Customs to receive cargo manifests electronically and to expand its capabilities in electronically receiving the CusDecs from importers. A pilot project to receive electronic version of the cargo manifest is already in progress. With effect from 01.10.2010, Sri Lanka Customs has introduced e- manifesting facility for imports made under the Bonding, TIEP (Temporary Import for Export Processing) and InFac (Investor Facilitation Centre) schemes. This facility will be progressively expanded to include all imports.

As a significant move towards recognizing legitimate trade practices, Sri Lanka Customs has set up a separate Branch headed by a Deputy Director of Customs to address the issues relating to Intellectual Property Rights violations. The Valuation Database was developed - not only to secure due revenue to the government, but also as a measure to ensure fair trading prevails unaffected from the undue competition created by importers who evade taxes through under-invoicing. The Data Base assisted the Department in recovering additional revenue of Rs. 1,765 million from revaluation of under-invoiced imports in 2010, reflecting a remarkable increase by 134 per cent as compared to Rs. 752 million recorded for the year 2009. This achievement is more significant as the additional revenue collected through revaluation in 2010 was five-fold as compared to Rs. 300 million recorded in 2005.

The offices of Customs were in scattered locations, making Customs affairs difficult for Customs officials as well as clients, so the construction of a Customs House - a 13 story- building with over 40,000 square meters of floor costing Rs. 4.5 billion to the Consolidated Fund – had been commenced in the in the centre of the Colombo City, and eighty (80) percent of the construction work of the new building is already been completed. This new Customs House facilitates importers, exporters and general public to a greater extent providing almost all Customs services under one roof.

3.3 Performance in Law Enforcement

Sri Lanka Customs is entrusted to enforce Customs Ordinance and the related laws to safeguard the government revenue, healthy market competition, and social and environmental well being. The number of cases registered in the past few years indicates a reduction of violations of the Customs Law and related laws. Number of cases registered annually dropped by 15 per cent in 2010 amounting to 6096 cases, after a fall of 19 per cent in 2009. The overall impact of the stringent law enforcement has resulted in a reduction of cases detected.

Sri Lanka Customs in enhancing its efforts towards protecting the society and the environment from the wrong-doers had set up a separate Directorate for “Social Protection Activities,” amalgamating allied units hitherto scattered within the Customs administration for the same purpose. The four areas, namely, Narcotic Control, Consumer Protection and, Bio-diversity Protection, Cultural and National Heritage Protection have been identified for the purposes of stringent enforcement of the Customs Law and other related laws. The Narcotic unit was able to intercept 17 kg. of Methamphetamine, the first ever detection in that scale in Sri Lanka, and 36 kg. of Heroin this year. In addition to that, tobacco based carcinogenic products ( “Paanparak” , “Hans” and “ Beedis ”) had been seized in large quantities.

3.4 Performance in Human Resource Management

The Customs Department is prepared to face the challenges emerging along with the evolving economic objectives of the nation which requires result oriented processes and people. The major initiative towards achieving that was the organizational reforms (embodying some of the changes proposed in the Customs Reform and Modernization (CRM) programme introduced under the FMRP this year, which had laid the foundation for the new sprint and the task of rebuilding a “Professional Customs Service” with sound integrity.

The new organizational structure comprises of the following 9 staff levels under the Director General of Customs (DGC):

Additional Director Generals of Customs (ADGC) - 04 posts Directors of Customs (DC) - 23 posts Deputy Directors of Customs (DDC) - 98 posts Superintendents of Customs (SC) - 192 posts Deputy Superintendents of Customs (DSC) - 376 posts Assistant Superintendents of Customs (ASC), Grade I & II - 748 posts Chief Inspectors of Customs (CIC) - 130 posts Inspectors of Customs (IC), Grade I & II - 593 posts Customs Guards (CG) - 207 posts

Under the reform programme, the process of absorbing the present staff into the new positions commenced at the beginning of 2010 and its major tasks were completed by 06 th September 2010. Necessary preparations for the recruitment of 200 Assistant Superintendents of Customs, Grade II, 100 Inspectors of Customs, Grade II and 50 Customs Guards for the year 2011 were completed.

PART TWO

Performance of the Directorates --- 2010

HUMAN RESOURCES CLUSTER

1. Human Resources Management (HRM) Directorate

1.1 Introduction

HRM Directorate strives to maximize the return on investment in the Department's human capital and minimize financial risk. This Directorate seeks to achieve this by aligning the supply of skilled and qualified individuals and the capabilities of the current workforce with the Department's strategic plan and the requirements to maximize the return on investment and secure future survival and success.

1.2 Major Functions

To perform the mission of the Department, the HRM Directorate plays a very vital role. It sets the strategies and develop policies, standards, systems, and procedures for: recruitment, selection, and resourcing; employee record-keeping and confidentiality; organizational design and development; restructure and change management; performance, conduct and behavior management; customer and employee relations; human resources (workforce) analysis and workforce personnel data management; compensation and employee benefit management; employee motivation and morale-building.

1.3 Performance in 2010

The service minute of 1968 and its amendment in 1980 did not contain critical sections on induction, promotion criteria, performance evaluation, transfers, training, requirement of professional qualification for top posts etc. The Human Resources Committee appointed by the Director General of Customs formulated the new recruitment scheme and the Cabinet of Ministers granted approval for its implementation with effect from 01 January 2010. Structural changes could be visualized by comparing the previous and present organization structures given in page No. vi and vii respectively. The corresponding cadre change is given in Table 1.1.

Table 1.1: The cadre change resulting on the restructure of the hierarchy

Designation Service Previous Change+/- New 1. Director General of Customs (DGC) Customs 1 0 1 2. Additional Director General of Customs 0 3 3 Customs (ADGC) 3. Additional Director General of SLAS 0 1 1 Customs (ADGC) 4. Director of Customs (DC) Customs 9 8 17 5. Director of Customs (DC) SLAS 4 2 6 6. Deputy Director of Customs (DDC) Customs 65 17 82 7. Deputy Director of Customs (DDC) SLAS 10 6 16 8. Superintendent of Customs (SC) Customs 114 78 192 9. Deputy Superintendent of Customs Customs 0 376 376 (DSC) 10. Assistant Superintendent of Customs Customs 922 -174 748 (ASC) 11. Chief Inspector of Customs (CIC) Customs 62 68 130 12. Inspector of Customs (IC Gr.I & II) Customs 694 -101 593 13. Customs Guard (CG) Customs 0 207 207 14. Launch Master Customs 6 0 6 15. Launch Driver Customs 16 0 16 16. Coxswain Customs 17 0 17 17. Lascar Customs 26 0 26 18. Office Employee Service Customs 33 0 33 19. Lorry/bus cleaner Customs 3 0 3 20. Accountant Accountants’ 6 0 6 Service 21. Statistician Dept of 1 0 1 Statistics 22. Translator (Tamil) Dept of OL 1 0 1 23. Translator (English) Dept of OL 1 0 1 24. Budget Assistant Dept of NB 1 0 1 25. Administrative Officer Combined 3 0 3 26. Shroff - Supra grade Combined 1 0 1 27. Public Management Assistant Combined 227 0 227 Service 28. Driver Combined 66 0 66 29. Building Caretaker Combined 2 0 2 30. Office Employee Service Combined 141 0 141 Total 2432 491 2923

Table 1.2 compares the performance of the Directorate in 2010 with the last two years.

Table 1.2: Comparison of performance

2008 2009 2010 Called applications for Number of open examination recruitment by gazette examinations and Nil Nil notification for interviews held 100 ASC-II, 100 CI-II, 50 CG.

Interviews held to promote Iinterviews for 02 for ASC-I 12 DCs promotions. 02 for CI-I 32 DDCs 107 SCs 376 DSCs Promoted92 CIC s 4 ADGCs Number of 4 DDCs Promoted 4 to 12 DCs promotions and promoted DCs 76 DDCs recruitments. 116 ASC-II 41to CICs and 44 ADCs recruited 3 to IC-I 11 8 SCs Promoted 10 CIC 70 DSCs to ASC-II 92 CICs 32 CI-I

Number of EB Requested 09 Requested 8 Held 8 examinations from Exam Dept. Held 05.

2. Human Resources Development (HRD) Directorate

2.1 Introduction

The main objective of the Directorate is to develop the Department’s human resource to be in readiness to carry out the current duties and face the evolving needs and challenges in achieving the Departmental goals and objectives, through capacity building. In achieving that objective, the Directorate concentrates on the knowledge, skills, and attitudes of the staff, both existing staff as well as new recruits. The Directorate also provides capacity building opportunities to its stakeholders to promote self-compliance and self-declaration, both paramount in assisting the Department carrying out its main job of collecting revenue. Keeping in line with the organization’s “March to Modernity” concept, the HRD Directorate also has taken steps to adopt the latest HRD methodology in capacity building activities.

2.2 Major Functions

The main function of the Directorate is two-fold: conducting staff training and Wharf Representative Training. Staff training encompasses both local training and foreign training. The Directorate is also entrusted with developing the training systems for the Department, as well as external organizations requesting our assistance. The Directorate conducts a TNA (training needs analysis) and prepares and publishes its Annual Training Calendar for the information of all staff.

Local training is aimed at enhancing the knowledge and awareness in the relevant field together with competency development. Such training directly relating to Customs techniques and procedures is mostly conducted using the in-house Resource Persons; external experts are used for other training activities.

Foreign training mostly based on the Training Sessions and Workshops sponsored by donor agencies like Customs Cooperation Fund, Japan and Customs Cooperation Fund, Korea. In addition to that, for certain valuable capacity building activities organized by such organizations like WCO and its Regional Office in Asia and the Pacific, respective Secretariats of the Multi-lateral Environmental Agreements, etc., officers are nominated and sent for participation utilizing the Customs Officer’s Management Fund. Some of the training had been organized under the FMRP and training opportunities received through External Resources Department (ERD).

For foreign scholarships of longer duration, the Officers are nominated and selected through an interview processes aimed at assessing the nominees aptitude for selecting the most suited with the best aptitude and capacity for facing and absorbing the training abroad, and contributing to the organization on their return by sharing what they have learned with their colleagues.

2.3 Performance in 2010

Number of training programmes conducted and training opportunities given for the staff was remarkably higher in the year than that of 2009, reflecting a 45 per cent and 42 per cent increase respectively. The total training opportunities utilized both local and foreign was as high as 1728 officers, a figure almost equivalent to 50 per cent of the total current staff. (Table 2.1).

Table 2.1: Comparison of Performance 2009 – 2010

Number of Programmes Number of Participants Programmes 2009 2010 2009 2010 Local 62 44 966 1337 Foreign 26 84 247 391 Total 88 128 1213 1728

Out of the local training programmes conducted, 9 programmes were conducted for Superintendents of Customs and above grades, while 30 programmes were conducted for Assistant Superintendents of Customs and others. Foreign trainings consisted of 6 seminars, 8 workshops, 70 training programmes. Table 2.2 shows the participation on the training opportunities among the all grades of staff of the Department.

Table 2.2: Distribution of Training Opportunities (Work Shops, Study Tours, Seminars, Conferences and Meetings in Year 2010)

Grades Local Foreign Director General of Customs - 01 Addl. Director General of Customs - 05 Director of Customs 09 12 Deputy Director of Customs 15 18 Assistant Director of Customs 13 01 Superintendent of Customs 34 09 Assistant Superintendent of Customs 1259 30 Other grades 07 01 FMRP training - 314 Total 1337 391

2.4 Customs Library

The library facility is available for all grades of staff of the Department. While book lending facility is limited to the Members, even the non-members can use the library for reference. In addition to the books, periodicals, news papers and various magazines available, the library collects the Departmental Orders, reports made by the officers attending foreign training and other publications made by the Department for future reference. Table 2.3: Library Service

Description 2009 2010 4 Number of New Members registered 43 15 Number of Books purchased 562 464 Number of Books received as donation 116 105 Number of Lending items 1698 3778

4 Total membership is 861 up to 2010

3. Employee Services Directorate

3.1 Introduction

To provide an environment in which employees will be able to contribute creatively and participate constructively in the process of achieving corporate goals of the organization is expected from this Directorate.

3.2 Major Functions

Conduct awareness programme on productivity improvement teams (PIT) for the staff at each level in the Customs in consultation with National Productivity Secretariat. Establish PIT in each Unit of the Customs towards achieving ISO standards. Hold regular discussions with Trade Unions recognized to build up a rapport identifying employee issues and hold negotiations for a settlement. Establish Negotiation Committees to take decisions on disputed matters. Handling grievances to foster satisfaction and minimizing dissatisfaction among employees over the management. Identifying all welfare amenities currently being provided and their current standards to take steps to render a quality welfare service. Devise and implement welfare plans in consultation with employees at all levels. Implementation of Code of Ethics incorporating in the disciplinary procedure of the Customs. Monitor that employees follow the Code of Ethics through normal staff supervision mechanism, head of directorates and supervisors. Make the implementation of Code of Ethics effectively by using disciplinary procedure as far as possible against those who breach the Code of Ethics.

3.3 Plans for future

• Completion of Awareness Programmes on PITs for all staff categories. • Establishing PITs in each Units • Establishing a Negotiation Committee. • Establishing a Grievance Committee

CORPORATE CLUSTER

4. Policy, Planning & Research (PP&R) Directorate

4.1 Introduction

Policy, Planning and Research Directorate is mainly responsible for policy and tariff issues and international affairs. Its broad objectives can be summarized as follows:

01. Assisting the Director General in developing the Departmental Policies and converting same to procedures to be implemented by respective Directorates; conveying such decisions to the officers for information and compliance.

02. When requested, assisting the line Ministries and Departments in (i) Developing economic/trade policies AND (ii) Converting such policies to tariff measures;

03. Conveying Tariff Measures to the officers and the public as relevant for information and implementation.

04. Ensuring that the National Customs Tariff is maintained in the most updated status; attending to all Tariffs related inquiries and resolving Tariff related disputes.

05. Ensuring that the information required by public for promoting self compliance is available through the Departmental Help Desk.

06. Representing the Sri Lanka Customs Department at WCO, its Regional Bodies, and other International Organizations (WTO and Secretariats for MEAs) and at Bi-lateral and Multi-lateral Trade Negotiations.

07. Adopting the WCO’s recommendations and best practices by converting to policies and procedures in order for the Department to achieve its vision.

4.2 Major Functions

4.2 (A) Policy Issues

4.2(A)i Customs Tariff Guide

Sri Lanka Customs is entrusted with the collection of all the taxes imposed on the international trade. During the year 2010, the Customs Department collected the following on the imported commodities: Import Duty and Export Duty Excise (Special Provisions) Duty Import Cesses Port and Airport Development Levy (PAL) Regional Infrastructure Development Levy (RIDL) Value Added Tax (VAT) Nation Building Tax (NBT Social Responsibility Levy (SRL)

Export Duty and Export Cesses are payable on some of exported goods. In addition to that, Special Commodity Levy (SCL) becomes payable periodically on certain selected essential consumer commodities. As a result of these various levies, each commodity shown in the Customs Tariff carries various assigned taxes hence the Customs tariff has become a complex document. In addition to that, certain selected commodities are assigned with Preferential Duty Rates, applicable for commodities originating from countries with which Sri Lanka has entered into bi-lateral or multi-lateral trade agreements. These preferential rates too contribute to increasing the tariff’s complexity. Further, even the general duty rates are twofold as advalorem and specific (also known as unit rates). As a result of this complexity, the general public as well as the officers find it extremely difficult to remember all the taxes and rates applicable for any given commodity. Therefore, the Customs Department during the past decade had been publishing an annual Tariff Guide soon after the Budget, incorporating in one book, all the taxes and tax rates payable on commodities. Compiling the Tariff Guide and publishing it without delay after the annual Budget is a huge task entrusted to the Policy, Planning and Research Directorate, a task which it had accomplished to the entire satisfaction of all users.

4.2(A)ii Departmental Circulars

Departmental circulars are frequently issued, as and when it becomes necessary to convey a policy decision, and the resulting changes occurring in the existing procedures, or to convey new procedures, or changes in the manuals of procedure. As a result, Departmental Circulars represent an important official news channel. Policy concepts originate in respective Directorates and are channeled to the policy, Planning and Research Directorate where at the content is vetted for inconsistencies with existing procedures and circulars, and the final text is prepared and the circular takes the official shape and format. Once it is approved by the Director General, it is printed and circulated. The whole process including the circulation is a time consuming and tedious one, but the Directorate strives to issue the Circulars without delay because in the first instance the circulars become necessary to convey important and urgent directives to the staff.

Revenue Protection Orders (RPOs) are another kind of a circular, that has to be prepared, printed and published within the shortest possible time (normally within the same working day) to convey changes in the taxes and levies, enabling the officers to start collecting the new rates from the effective date and time. Those changes originate from the General Treasury, and those circulars play an essential part in taxation.

4.2(A)iii Exchange Rates Circulars

The value of almost all the imports is declared in a foreign currency requiring the Customs to convert same to the value in Sri Lankan Rupees. Unlike the ever-changing (floating) parity rates used by the banks and money changers, the Customs Department is applying weekly parity rate applicable for one working week. Since the rates change on each week-end, with a new rate valid from the following Monday, the “Exchange Rates” as decided by the Central Bank are published weekly, and circulated by the Policy, Planning and Research Directorate. That circular is an essential guide for all the officers as well as the traders in taxation.

4.2(B) International Affairs

Although not indicated by its name, the Policy, Planning and research Directorate is also entrusted with Customs related international affairs. Communicating with the World Customs Organization and its Regional Office for Asia and Pacific is a major function falling in that category. WCO sends frequent communiqués and the Directorate has to respond to those suitably. When the Sri Lanka Customs Department finds it impossible to resolve classification disputes, such disputes are referred to the WCO. The changes in the Harmonized System Nomenclature are conveyed by the WCO and adopted by the Directorate.

In addition to that, the Policy Planning and Research Directorate is responsible for handling Customs Mutual Cooperation clauses coming within the ambit of Regional Bi-lateral and Multi-lateral Trade Agreements. Currently, India is the largest bi-lateral trading partner with Sri Lanka and Pakistan is the second largest. The India-Sri Lanka Bilateral Customs Mutual Assistance activities have now grown into a well established scheme, whereas the cooperation mechanism for fostering mutual cooperation with Pakistan Customs is just beginning to take shape. The 10 th Technical Committee for pursuing bi-lateral cooperation with Pakistan was successfully concluded in Islamabad in August 2010. In addition to the two bilateral agreements with India and Pakistan respectively, Sri Lanka is also actively pursuing the possibility of establishing such Customs Cooperation Mechanisms with Iran, Iraq, Vietnam and Mexico, etc.

4.2(C) The Departmental Technical Committees

The Policy, Planning and Research Directorate also has to provide the secretarial and logistical support to two important technical committees – namely

(1) The Customs Nomenclature and Classifications Committee (also known as NC Committee) and (2) Trade Facilitation Committee. (3) While the NC Committee which convenes each Tuesday deals with all the classification issues and disputes, the Trade Facilitation Committee convening biweekly is mainly entrusted with the implementation of the Revised Kyoto Convention Recommendations relating to trade facilitation, and other trade facilitation issues in the Department.

4.2(D) Planning activities

Reviewing the annual Action Plan and deciding the Action Plan for the next year are two major responsibilities falling in this category. Reviewing the progress of Key Initiatives of the Department and preparing the annual Performance Report is another.

All matters relating to entering in to Memorandum-of-Understanding with other national and international organizations (for example - Customs Organizations of other countries), is also one of the important functions handled by this Directorate.

4.2(E) Research activities

The Directorate is collecting performance reports from other Directorates monthly, and conduct research as needed by the administration.

4.3 Performance in 2010

During the year 2010 the Directorate had issued 53 circulars on Exchange Rates, and 77 Departmental Orders.

The composition of the Departmental Orders issued during the year 2010 was as follows:

• Value Added Tax amendments 09 • Excise Tax amendments 13 • Port and Airport Development Levy amendments 05 • Social Responsible Levy amendments 02 • Rural Infrastructure Development Levy amendments 01 • Special Commodity Levy amendments 09 • Surcharge amendments 02 • EDB Cess Levy amendments 07 • Revenue Protection Order 02 • Export Cess Levy 03 • Nations Building Tax amendments 05

In addition to that, the Director and the Deputy Directors had represented the Director General at a large number of Trade and other Negotiations, locally as well as in abroad.

5. Information and Communication Technology (ICT) Directorate

5.1 Introduction

The fundamental objective of ICT Directorate - previously known as Automated Data Processing (ADP) Unit - is to innovate and institute new, more efficient and fool-proof computer-based systems and processes to encourage the submission of all Customs declarations and other supportive documents electronically. Automation of CusDec processing ensures an efficient and effective Customs administration which ensures speed, timeliness, reliability, quality, clarity and accuracy of the information and reports generated from the data captured through automation.

5.2 Major Functions

• Support to achieve organizational goals through automation. • Maintain the systems network, computer peripherals and the data bases successfully to ensure the smooth functioning of all software systems including ASyCuDa. • Provide timely and accurate information and reports to Customs Management, other government agencies and stake holders and to various other divisions and units of the Customs Department. • Conduct evaluations and effecting upgrades to the existing systems including ASyCuDa++, Cargo Control System, Thineth etc. to match with the global advancements. • Enhance professional quality and computer skills of ICT staff to achieve the desired operational goals. • Expand training in basic IT literacy and operation of ICT modules to staff of various divisions and units of Customs Departments.

5.3 Performance in 2010

Commencement of testing of manifest control through “ASyCuDa World” Software, and making available the facility to review and re-root the cargo coming under Sri Lanka Tea Board through ASyCuDa ++ system are some of the significant achievements the ICT Directorate made during the year of 2010. More details are summarized in Table 5.1 below.

Table 5.1: Performance of ICT Directorate

2009 2010 Number of CusDecs processed 863793 1006498 Manual 615336 707154 DTI 28345 56231 EDI 220112 243113

Import 495197 593477 Import - General 219653 263088 Import - Motor Vehicles 5669 30988 Import - Facilitation Scheme 269875 299401

Export 368596 413021 Export - General 132485 139971 Export - Facilitation Scheme 236111 273050

Performed system updates Customs procedures 10 23 Change of Rules 08 26 Tariff changers 45 36 Performed System Auditing Number of Cases Registered 42 27 Significant Cases detected by ICT Directorate Number of Cases 42 27 Penalty (Rs. Mn.) 23.2 64.4 A/E Recovered (Rs. Mn.) 0.8 Number of Cases pending at investigation/inquiry 26 15 stage Number of Cases with no further action 16 02 Preparation of statistical Reports for Internal (Investigation units and other Customs 450 600 Divisions) Internal Audit 65 80 External (Government Departments) 120 250 External (Enforcement units like – Police, CID, etc.) 60 65 External (Private parties) 250 850 Web publications and amendments Exchange Rate 52 52 Tender Notice 41 50 HS Amendments 37 36 Publications 03 04 Freight Forwarders Registration Number of Freight Forwarders Registered Nil 250

6. Central Valuation Directorate

6.1 Introduction

Central Valuation Directorate is entrusted with functions related to determination of value of imported goods under Schedule ‘E’ of the Customs Ordinance, in order to safeguard Customs revenue. Under the new organizational structure (w.e.f. September 2010), former Valuation Directorate was separated into two Directorates namely Central Valuation Directorate and Post Clearance Audit Directorate.

6.2. Major Functions

Determine values for Customs purposes Maintain the Valuation Data Base (VDB)

6.3 Performance in 2010

Table 6.1: Performance of Central Valuation Directorate

2008 2009 2010 Number of cases detected 184 606 647 Number of cases finalized 170 167 631 Number of cases pending 14 22 16 Forfeited Nil Nil 2 Amount of penalty recovered (Rs. Mn) 4.8 3.8 9.7 Recoveries by Additional Entries (Rs. Mn.) 23.4 752.0 1,765.4

7. Specialized Services Directorate

7.1 Introduction

This Directorate provides services in respect of commodity classification, valuation of gem, precious metal and jewellery, registration of importers and exporters and issue of licenses to the Customs House Agents.

The commodity classification Division of this Directorate is responsible for determining the appropriate harmonized system code for the commodities imported/exported. They provide assistance to Customs staff at various points to overcome the dispute in the classification of goods in the Harmonized Commodity Description and Coding Systems. They also provide classification advice to the importers/exporters.

The Customs laboratory assist the Department in ascertaining correct description of commodities and provide classification opinion on sample of goods referred to by various other units of the Department. As a technical unit, it would coordinate with other relevant stakeholders in implementing various conventions and existing regulation.

The Gem and precious metal Division facilitates importers, exporters and travelers in the Customs clearance of gem, precious metals and jewellery by valuing them and processing import/export documents.

This Directorate also handle issuing of licenses for the Customs House Agents for transacting business with the Customs relating to entry or clearance of any ship, or of any goods or of any baggage in any of the ports or places in Sri Lanka and the registration of importers and exporters in terms of Sec. 115 of the Customs Ordinance.

7.2 Major Functions • Commodity classification. • Valuation of gem, precious metal and jewellery. • Issue of licenses to the Customs House Agents and registration of importers and exporters.

7.3 Performance in 2010

7.3.1 Classifications Unit

Number of advices issued 456 Number of application received for tariff classification 280 Number of rulings issued on tariff classification 230

7.3.2 Customs House Agents Registration Unit

Number of Registered Custom House Agents 4,068 Number of renewals for the year 2010: 1,487 Customs House Agents Number of renewals for the year 2010: 5,432 Wharf Assistants

7.3.3 Chemical Unit

CusDecs received for analysis for identification only 101 CusDecs received for analysis & classification only 38 CusDecs received for classification only 484 Total Number of CusDecs received 623 No. of discrepancies detected Incorrect classification 28 The amount of duty to be recovered as A/E (Rs. Mn.) 7.4

7.3.4 Gem Unit Chart 7.1: Composition of Gem Exports 2010

Chart 7.2: Composition of Gem Imports 2010

8. Logistics Directorate

8.1 Introduction

The objective of the Directorate is to ensure that the entire process of logistics is maintained and developed in accordance with the Departmental goals at an economical cost. The Directorate is responsible for maintaining and developing of entire process of logistics in order to achie the Departmental goals.

8.2 Major Functions

a) Ensuring all requirements of the Directorates are met on time in an efficient and safe manner. b) Ensuring that the accounting, reporting and asset management systems are effective and efficient. c) To draft plans, policies and procedures for successful implementation of logistics system. d) To ensure that there is a safe and timely dispatch of goods. e) To ensure that the Departmental goods are in synchronization with the logistics system. f) To maintain coordination with service providers. g) Manage vehicle fleet for optimum running condition.

8.3 Performance in 2010

The Directorate has been operated very successfully during the year 2010. All the requirements of the Directorate are fulfilled avoiding unnecessary delays. The Procurement was done in terms of the provision of Government Procurement Guide Lines. The expenditure summery is in Table 8.1.

Construction of Sri Lanka Customs New Head Quarters Building

Construction works for new head quarters building was started in year 2005 and originally it was decided to complete within three years time. But due to many reasons, construction works has been continuing in year 2010 as well. At the beginning of the year, all contractors were advised to complete their construction works before end of the year and necessary instructions and infrastructure has been provided by the Department. The progress of works reported as 68 per cent at January 2010 and end of the year it has been reported as 79 per cent. Further, latter part of the year Cabinet of Ministers approval has been obtained for four procurements to be initiated for other special contracts i.e. Public Address System, Precision Control, Kitchen Equipment and the supply of Furniture. Based on the performance of the year, Department is willing to open the new head quarters building in January 2012.

Table 8.1: Supply Expenditure

Type of 2008 2009 2010 2011 Expenditure Rs: Rs: Rs: Rs: (Projected) Total Recurrent 65,336,275.49 214,539,519.93 215,102,664.96 217,850,000.00 Expenditure Expanding of Capital Expenditure

Building and 8,235,533.30 383,530.67 23,352.57 10,000,000.00 Constructing

Plant & Machinery 37,069,925.00 46,297,904.98 6,327,758.00 10,000,000.00

Acquisition of Fixed Assets

Furniture & Office 22,473,292.00 5,649,832.44 11,294,734.00 1,000,000.00 Equipment

Plant & Machinery 37,069,925.00 46,297,904.98 6,327,758.00 10,000,000.00

New Building 514,366,618.00 470,616,457.72 599,066,098.81 300,000,000.00

REVENUE & SERVICES CLUSTER

9. Declarations Directorate

9.1 Introduction

Declarations Directorate is responsible for collection and proper accounting of due revenue, reducing the time taken for document processing to achieve speedy clearance of import and export sea cargo, and enforcement of Customs and other related laws to maintain effective boarder controls over prohibited and restricted goods. Declarations Directorate was formed under the reforms by amalgamating former Imports Division and a part of the Exports and Bonds Divisions, but limiting to processing of declarations in respect of Sea Cargo only.

9.2 Major Functions

• Assess and collect due revenue on import and export cargo. • Process Customs Declarations under the regulations of Customs and other related organizations. • Grant duty waivers/exemptions and suspend duty and taxes under the State policy for the interest of trade, industry and the general public. • Facilitate legitimate importers/exporters under speedy clearance procedures.

9.3 Performance in 2010

Table 9.1 : Long Room Recoveries 2010 (Rs. Mn.)

Import Duty 54,485 Value Added Tax 87,137 Surcharge 2,095 Social Responsibility Levy 1,245 Ports and Airports Levy 41,599 Excise Duty 42,611 Cess 25,618 Regional Infrastructure Development Levy 4,654 Examination Fees 78.4 Computer Fees 47.8 Nation Building Tax 21,928 Other (MVL) 13.1 Seal charges 22.9 SCL 9,754 O.P.E.D.I ---- Total 291,288

9.2 (B) Collection of Revenue in Export Division - 2010 (Rs. Mn.) 645.2

Table 9.3 : Granting Duty Waivers and Tax Exemptions – 2010 (Rs. Million) Item Value Customs Duty 19 A General (Food Items) Milk Powder 30,668 8,126 Coconut Oil 162 31 Cocoa Beans 44 7 Wheat Flour 9,745 3,223 Maize (corn) 45 13 Palm Oil 5,957 1,695 Mail Extract 410 66 19 A General (Other) Granted for Religious Institution 19 4 Charitable organizations 107 9 Miscellaneous 3,691 1,076 Waivers/Concessions on Vehicles Motor Vehicle - Diplomatic Services ( Circular No 165) 42 11 Motor Vehicle - Public Admin ( Circular No 22/99 ) 294 74 Vehicle - Tax Payer Scheme 739 38 Motor Vehicle - Government Servant ( TTIP Circular ) 0 0 Exemptions for Provincial Councilors ( EPC ) 0 0 SLNBB (Sri Lanka Nation Building Bonds) 3 1 General Tax Waivers Lanka Indian oil Company 12,936 5,344 Ceylon Petroleum Corporation 75,007 23,892 PVC Leather Cloth 209 25 Gamata Karmantha 260 13 Tax Waivers on Mega Projects Kottawa Dodangoda Road Project 473 0 Colombo Katunayake Expressway Project 787 165 Ambepussa - Habarana Road Project 3 1 Colombo ( Port Development Project ) 4,643 291 Oluwil ( Port Development Project ) 224 35 Hambantota ( Port Development Project ) 3,544 454 Galle (Port Development Project) 11 1 Dikkowita Fisheries Harbour 1,087 62 Hambantota International Airport Project 30 1 Tax Concession on Road Rehabilitation in North 39 13

Total 151,179 44,670

Table 9.4: Various Tax Exemptions and Concessions granted in 2010 (Rs. Mn )

Item Value Total Tax Foregone NBT Exemptions 5,996 208 PAL Concessions 303 9 VAT Exemptions 18,883 2,597 Duty Exemptions 86,406 5,182 Duty Concessions 1,789 218 Tax Waivers Granted Under SCL 113,790 23,420 Duty Waivers Granted Under 166,437 11,653 FTA(Free Trade Agreements) TOTAL 393,604.6 43,287

Table 9.5: CusDecs processed and Revenue collected in Bonding Documentation

2009 2010

Total No. of CusDecs at Main Office (Times 69,130 82,395 Building)

Total No. of CusDecs at INFAC 7,763 5,885

Revenue Collection (Rs. Mn) 7,310 13,875

10. Industry and Services Directorate

10.1 Introduction

Industries and Services Directorate administers Customs Bonded stores, warehouses, places of security in relation to the goods suspended from payment of Customs duties and maintain supervisory controls on movements of such goods ensuring the application of defined procedures under respective facilitation schemes.

The Industries and Services Directorate performs Customs functions related with importation of cargo for temporary storage on security/bonds to facilitate clearance for the needs of trade and industry under specified procedures and promote Manufacturing/Export Industry aiming to explore the avenue for diversification of the traditional trend of exports in Sri Lanka with proper coordination between the relevant line authorities, especially with the Board of Investment of Sri Lanka. Main branches in the Industries & Services Directorate 5 are Project Unit, Monitoring Branch, BOI Industry Co-ordination Unit and Postal (Colombo) Branch.

10.2 Major Functions

The main functions of the Directorate are given below.

• Manage Customs Bonded Warehouses. • Manage Export Facilitation Schemes, namely, Temporary Imports for Export Processing (TIEP), Duty Rebate Scheme and Investment Facilitation Centre. • Manage activities related to duty free shops. • Coordinate with the BOI to resolve Customs related issues of BOI enterprises and facilitate clearance of imports and exports. • Manage clearance of mail parcels.

5 After the Reform, Gem unit and BIA Duty Free Shops were removed from the Bonds Directorate and Postal (Colombo) Branch was included under the Industries & Services Directorate.

10.3 Performance in 2010

10.3. 1 Projects Unit

Table 10.1: Customs Bonded Warehouses in 2010

The number of Bonds

as at the end of the year Public Bonds 3 Private Bonds 50 Manufacture- In- Bonds 6 Sugar Bonds 4 UPB Bonds 8 Service Bonds 12 Feeder Bonds 74 Duty Free 51 MCC Bonds 7 Total 215

Note: During the year, an approval for a Manufacture- in- Bond was given and a Duty Free and a Private Bond were deboned.

Table 10.2: TIEP 1, TIEP 4 & IBG Schemes in 2010

Operators TIEP 1 TIEP 4 IBG i. No. of operators at the beginning of the year 742 440 186 ii. No. of operators joined during the year 49 07 04 iii. No. of operators at the end of the year 797 447 190 Value of Imports (Rs. Million) 63,198 1,344 258,456

Table 10.3: Duty Rebate

2008 2009 2010 Duty Rebate Payments (Rs. Millions) 151.97 250.76 41.49 No. of claims received 8047 - 1777 No. of claims processed 4635 125 367

10.3.2 Monitoring & Refund Branch

Table 10.4: Secured Revenue in 2010

Number of Value Guarantees (Rs. Mn.) B/G Accepted 2003 3,222 B/G Demanded 250 186 B/G Settled 2556 2,871 P/G & C/G Accepted 120 7,192

10.3.3 BOI Industry Co-ordination Unit

Table 10.5: CusDecs processed and Verifications done

2008 2009 2010 Imports 5350 3756 3034 CusDecs Processed Exports 5611 4007 2851 Imports 2022 1648 1335 Verifications done Exports 3144 2449 1711

Table 10.6: Revenue collection from BOI Enterprises (Rs. Mn.)

2009 2010 Revenue 10,664 11,173 Duty recovered due to the cancellation of 12,766 9,297 agreements

10.3.4 Bonds Investigation Unit

Table 10.7: Number of Violations detected and Recoveries made

Unit CBCU BIU 2008 2009 2010 2008 2009 2010 Number of cases at the 37 46 51 571 600 610 beginning of the year Number of cases initiated 19 08 4 43 18 12 during the year Number of inquiries concluded 10 03 3 14 08 03 during the year Number of cases pending 46 51 48 600 610 619 investigation Recoveries (Rs. Mn) Special Deposits - 209 - Penalty/ forfeitures 325 271 59 21 46 Nil Sales proceeds - 22 - Value of the goods forfeited - - - 0.1 8 0.6 Total 325 503 59

CBSU- Customs BOI Coordination Unit BIU- Bonds Investigation Unit

10.3.5 Postal Appraisement Branch (Colombo)

Table 10.8: Performance in 2010

No. of Parcels Received 33824 Total Revenue Collection (Rs.Mn.) 70.5

11 Cargo Examination (CE) Directorate

11.1 Introduction

Cargo Examination Directorate is responsible for physical examination of import and export sea cargo on CusDecs processed after recovery of duty and other levies to ensure due revenue has been recovered and other applicable regulations on prohibitions and restrictions have been enforced prior to release the cargo examined in order to achieve the related objectives of the Department.

Screening of import CusDecs, scanning of containers, examination of import and export sea cargo at the warehouses in the Port and FCL yards are the main areas falling under the purview of Cargo Examination Directorate.

11.2 Major Functions

• Examination of import/export cargo to ensure application of border controls, regulations on prohibited and restricted goods. • Ensure recovery of due revenue on actual quantity, contents, and at correct rate of duties before releasing cargo. • Study and identify risk factors of imports and exports to select the appropriate channel for physical examination. • Facilitate importers and exporters under speedy procedures to promote legitimate trade.

11.3 Performance in 2010

During the year 2010, attempts were made to introduce an effective risk management system to make the optimum use of the resources available and to strike a balance between facilitation and control.

Efforts were made to minimize the cargo examination time and it was noted that a very high percentage of low risk and medium risk cargo were examined and released on the same day. Most of consignments channeled to RCT were food items and about 600-700 containers were examined daily. The Association of Clearing and Forwarding Agents (ACFA) had commended Customs in this regard. Further improvements could be made with more cooperation with other Border Control Agencies (BCA) who have to grant certain approvals prior to release of cargo. Inadequate staff, as both Customs and other authorities, is a major factor for delays in clearance, which need to be addressed.

The progress made in cargo examination through present risk management system was satisfactory and it was reflected from additional recoveries, numbers of frauds detected and increase in import revenue. However, there are improvements to be made with the assistance of the Risk Management Committee and automation. Furthermore, there were complaints and issues to be addressed. One of the major complaints was that the consignments detained by different Divisions and Units for examination and investigation were not conducted uniformly. In such cases, the degree of examination, valuation of goods, investigation procedure and inquiry procedure varied from one to another. These issues are to be 40

addressed by the Risk Management Committee, Valuation Committee and Enforcement Committee.

It has been proposed to bring export cargo under X-Ray Scanning at the entrance to the Port of Colombo with an idea of minimizing cargo examination process currently being done at Export cargo examination yards. The ASyCuDa selectivity module for CusDecs screening had been implemented mainly through Risk Management Committee directives. The X-Ray scanners are used to screen certain low risk cargo and release them with minimum delay. X- Ray scanners are also used to conduct examination of high risk and medium risk cargo more effectively. Details of the cargo examinations conducted during the year and other relevant information are shown below.

Chart 11.1: CusDecs channeled to different examination points

Chart 11.2: Type of Cargo Examination

Table 11.1: Salient Features of the Performance of the Directorate

Description 2008 2009 2010

No. of CusDecs Registered 139,837 82,626 464081 No. of Containers Regd./ Destuffed 272,057 91,288 558,359 Amber 37,949 59,240 114,257 Detail - 170,151 12,834 HRC - 0 4,416 Type of Examination Red 26,782 16,174 9,145 BOI - 412 27,968 Other - 608 13,725 No. of A/E Proceed 279 351 418 Cases Detected ` 259 325 A/E Recoveries (Rs. Mn.) 71.3 84.4 113.1 Penalty Recoveries (Rs. Mn.) 40.8 26.0 55.8 Overtime Recoveries General 13.1 18.5 34.0 (Rs. Mn.) BOI Pending 4.1 0.006 0.1 No. of Containers deposited - 749,338 978,688 No. of Containers shipped - 777,452 897,986 No. of Transshipment Rgd - 1,113 15,693 SAGT 4,819 418 4,205 Total Manifest Reported JCT 6,892 460 7,900 Value of the Goods Forfeited (Rs. Mn.) 0.2 0.01 7.8 No. of Vehicles Transshipped 1,148 221 1,096 No. of Vehicles Bonded 106 0 6,094 No. of Vehicles released 22,976 683 39,613 No. of Containers Scanned 7,683 11,307 9,758

12 Passenger Services (Colombo) Directorate

12.1 Introduction

Passenger Service (Colombo) Directorate is responsible for facilitation of sea passenger processing and baggage clearance, both inward and outward including UPB clearance of sea and air, safeguarding revenue, prevention of importation and exportation of restricted and prohibited items, safeguarding socio economic, cultural and ecological interest of the society.

12.2 Major Functions

• Clearance of passengers traveled by sea • Passenger Baggage clearance

12.3 Performance in 2010

Table 12.1: Number of Packages (UPB) Examined in Colombo area – 2010

The number of Packages Warehouse Examined GIFT UPB NNR 2,578 22,642 Laksiri Sewa 14,394 53,596 Transco 14,100 47,739 Midco 6,609 36,983 Trico 17,973 63,746 CSL 18,432 45,881

Total 344,673

13. Passenger Services - Bandaranaike International Airport (BIA) Katunayake

13.1 Introduction

Passenger Services Directorate (Katunayaka) facilitates the movements of inward and outward passengers and their baggage expeditiously ensuring the implementation of the Customs and other related laws with due reorganization to protect socio economy of the country and free flow of bona- fide travelers.

13.2 Major Functions

This Directorate provides services through following three main branches.

A. BIA Inward – Passenger Branch B. BIA Outward – Passenger Branch C. Monitoring Duty Free Shopping Complex (DFSC)

13.2.1 BIA Inward – Passenger Branch

The Inward Branch deals with the clearance of passengers who are arriving to Sri Lanka and their accompanied baggages. Functions include;

1. Facilitation of inward (arrival) passengers and clearance of their accompanied baggage including the purchased goods from Duty Free Shops. 2. Ensure due revenue collection as duties/levies from passenger baggage. 3. Conducting investigations and inquiries into Customs offences. 4. Facilitation of VIP movements at BIA. 5. Handling Gem/ Jewellery and parcels approved by Customs/NGTA. 6. Examine and approve foreign currency declarations made by Inward Passengers. 7. Release goods on ATA Carnet, Guarantees and Special Deposits. 8. Granting Duty Free Baggage Allowance on passenger baggage.

13.2.2 BIA Outward - Passenger Branch

The Outward Branch deals with the clearance of passengers and baggage leaving Sri Lanka and the departure of transit passengers. Functions include;

(1) Facilitation of outward passengers, airline crew, their baggage and currency. (2) Gem parcels hand carried by passengers. (3) Endorsing remaining baggage Allowance on the Power of Attorney enabling as authorized person to clear the unaccompanied baggage after the departure of the passenger. (4) Monitoring movements of goods to and from shops in the departure transit area and maintain individual files. (5) Monitoring the deposit of foreign currency earned by sales by shops in the transit area. (6) Issue clearance to outgoing aircrafts. (7) Investigating and inquiring into cases detected in the departure area.

13.2.3 Monitoring Duty Free Shopping Complex (DFSC)

Duty Free Shopping Complex Branch deals with the Duty Free Shopping Complexes operate at the Inward and Outward Terminals of BIA. Functions include;

1. Monitoring of receiving Duty Free goods direct from harbour to feeder bonds. 2. Monitoring of receiving Duty Free goods service bonds to feeder bonds. 3. Monitoring of transferring goods from feeder bonds to relevant duty free shops (Inward and Outward Terminals) 4. Monitoring of sales of duty free shops to passengers. 5. Authentication of sales proceeds of duty free shops for banking purposes.

13.3 Performance in 2010

Total revenue collection at BIA in the year 2010 was Rs. 490.6 Mn. of which Rs. 181 Mn. was added as penalty (Chart 13.1).

Chart 13.1: Composition of Revenue collection at BIA

Table 13.1: No. of Cases as per nature of the offence and value of forfeiture

Number of currency cases 17 Value of currency forfeited (Rs. Mn.) 247 Number of gem cases 16 Value of gems forfeited (Rs. Mn.) 8.7 Number of gold jewellery cases 17 Value of gold jewellery forfeited (Rs. Mn.) 133 Number of other cases 98 Value of goods forfeited (Rs. Mn.) 360.9 Number of Silver Jewellery Cases 1 Value of Silver Jewellery forfeited (Rs. Mn.) 0.2 Number of tobacco based cases 5 Value of goods forfeited (Rs. Mn.) 1.7 Number of narcotic cases 3 Quantity of narcotics forfeited 18.622 kg. Total cases 157

14 Revenue & Services Directorate (Katunayake)

14.1 Introduction

Revenue and Services- Katunayake Directorate is responsible for collection of due revenue and facilitate clearance of import and export air cargo ensuring the boarder control regulations are enforced under the provisions of the Customs ordinance and other related laws.

Sri Lankan Air Lines Ltd functions as the major cargo handling agent at the Air cargo Terminal and SLFFA Cargo Services Ltd and Expo Aviation Ltd operate as other cargo handling agents and self handling services provider at Cargo Terminal II to provide services under the control of Customs.

14.2 Major Functions

1. Assessing and Collecting of Customs Duty, Cess, other levies and charges on goods imported and exported by Air. 2. Processing of goods declarations and permit clearance. 3. Grant clearance for goods imported for various export oriented facilitations schemes operated under Industries and Services Directorate. 4. Grant clearance for import cargo consigned to enterprises registered under Board of Investment of Sri Lanka. 5. Effect a round –the-clock speedy clearance of urgent cargo imported by Air including perishables, Courier cargo, Diplomatic cargo and mail etc. 6. Facilitate transfer of unaccompanied passenger baggage of returning passengers to various unaccompanied passenger baggage warehouses. 7. Processing Exports CusDecs and grant clearance for Exports shipments related to BOI, Non BOI, Courier and perishable cargo.

14.3 Performance in 2010

Revenue collected in 2010 showed an increase of 16.5 per cent amounting to Rs. 9,220 Mn. over 2009. It is noticeable that all other taxes other than VAT and Excise Duty which contributed around 60 per cent to the total, recorded negative or negligible growth.

Table 14.1: Performance of Air Cargo

Description 2007 2008 2009 2010 No of Flight Inward 13,686 13,452 11,794 15,017 No of Pkgs Landed 2,360,734 2,198,982 2,081,812 2,564,433 No of Pkgs delivered 1,238,691 1,706,880 1,145,408 1,473,996 No of Pkgs Transshipped 1,012,500 1,490,903 798,682 1,013,392 No of UPB transfers 18,616 13,649 15,578 15,508

Table 14.2: No. of packages as per mode of release

Description 2009 2010 Duty & Other Levy Paid 69006 80184 Bank Guarantee 826 808 Personal Guarantee 600 802 Provisional 1387 649 Bonding, Infac & TIEP 1717 1465 BOI 80407 87973

Table 14.3: Significant Cases due to false declaration, violation of Exchange Control Act etc.

Forfeiture/Penalty Rs. Mn. 27.4 A/E Recoveries Rs. Mn. 3.1

15 Revenue & Services (Provincial) Directorate

15.1 Introduction

Revenue and Services (Provincial) Directorate is responsible for managing all Customs related functions in out- ports and other provincial offices to provide services for the clearance of cargo, unaccompanied personal baggage and mail parcels. Provincial Directorate was established under the restructuring programme in order to decentralize the Customs activities in out- ports such as Galle, Trincomalee, Magampura and Jaffna including the services of other regional offices under one Directorate.

15.2 major Functions

• Collect due revenue on imports and exports. • Maintain border controls to ensure the protection of socio-economic safety of the country. • Examine and release import and export cargo. • Facilitate clearance of unaccompanied personal baggage and mail parcels at the regional level.

15.3 Performance in 2010

Table 15.1: Number of Packages inspected and Revenue collected

Packages Total Revenue Office inspected (Rs. Mn.)

Trico (Galle) UPB 20,913 10.6 Gift 3,753 Trico (Kurunegala) UPB 40,050 16.2 Gift 7,120 CSL (Kandy) UPB 24,335 9.3 Gift 5,751 Total 101,922 36.1

In 2010, Postal Appraisement Units in Kandy and Galle received 886 and 1833 parcels from sea/ air mail respectively and released all of them.

ENFORCEMENT CLUSTER

16 Preventive Directorate

16.1 Introduction

Preventive Directorate is the main law enforcement arm of Sri Lanka Customs having surveillance over the Port of Colombo, other sea ports, Bandaranaike International Air port, Free Trade Zones, Export Processing Zones, examination yards, inland clearance depots, water front and the territorial waters, water ways and all other operational areas of Customs.

Under the reform scheme, the Central Disposal Sub Directorate was established for the custody and disposal of the goods forfeited by the Department of Customs whereas Prosecution Branch of the Preventive Directorate was merged with Legal Affairs Directorate.

16.2 Major Functions

a) Prevention of all smuggling, commercial frauds and drug offences. b) Receive information, detection of fraud, seizure of un-customsed goods, conduct investigations and inquiries and prosecution of cases. c) Ensure the due collection of state revenue. d) Safeguard socio-economic, cultural and ecological/environmental interest of the nation and enforcement of the laws and regulations in this area. e) Surveillance of sea port-Colombo, other sea ports, Bandaranaike International Airport-Katunayake, Free trade Zones, Export Processing Zones and all other operational areas of Customs. f) Control of vessel movement and boarder operations. g) Disposal of goods forfeited by Department of Customs.

16.3 Performance in 2010

Table 16.1: Performance

2008 2009 2010 Values of goods forfeited (Rs. Mn.) 0.9 57.4 7.3 Amount of penalties/forfeitures imposed 185.4 21.3 19.4 Amount of penalties/forfeitures recovered 141.5 44.7 65.6 Value of Bank Grantees Accepted 40.2 24.1 83.2 No. of sales conducted 46 43 35 Proceeds of sales 118.8 39.2 28.4 Payments received from Central Sales Unit 112.1 23.5 6.1

Table 16.2: Cases Registered

2009 2010 No. of cases initiated / detained by the staff during the year 3596 2164 No. of cases produced by other agencies 18 48 Total No. of cases registered 3614 2212 Total No. of pending cases at the end of the year 2008 2166 4218 No. of cases finalized during the year 2009 1562 1648 No. of cases pending at the end of the year 2009 4218 4782 No. of cases where penalties / forfeitures recovered 252 791 No. of cases finalized with no Customs offences 78 857

Table 16.3: Position of Court Cases

2009 2010

MC DC HC Total MC DC HC Total No. of court cases pending at the beginning of the year 37 5 1 43 38 3 0 41 No. of court cases filed during the year 139 6 4 149 11 2 0 13 No. of court cases disposed during the year 2 0 0 2 19 1 0 20 No. of court cases pending at the end of the year 38 3 0 41 30 4 0 34

17 Social Protection Directorate

17.1 Introduction

A separate Directorate was established for “Social Protection Activities”, amalgamating allied units hitherto operated under different Directorates in the Customs for the same purpose. The four areas, namely, Narcotic Control, Consumer Protection, Bio-diversity Protection, and Cultural and National Heritage Protection have been identified for the purposes of stringent enforcement of the Customs Law and other related laws.

The functions of prevention/interdiction of smuggling of narcotic drugs and psychotropic substances, which were under the Directorate of Baggage & Narcotics, have been brought under the Directorate of Social Protection. The foremost objective of this unit is, social protection and law enforcement envisaging the prevention of smuggling narcotic drugs and psychotropic substances in to the country. This embraces the “two -way- approach” (Demand reduction and Supply reduction) to curtail drug availability in the country.

17.2 Major Functions

17.2.1 Narcotics Control Unit (NCU)

• Round the clock surveillances at Air Port • Occasional surveillances at Air Cargo, Sea cargo, Mail and Courier etc. • Take prompt action against reliable information. • Organizing surveillance tours around the coastal belt. • Conducting training programmes. • Conducting awareness programmes. • Carrying out joint operation. • Coordinate with the other narcotics enforcement agencies.

17.2.2 Biodiversity, Cultural & National Heritage Protection Unit (BPU)

The main objective of the Division is to protect biodiversity and cultural heritage and ensure due revenue of Sri Lanka by enforcement of relevant laws while facilitating the trade at Customs points. The functions include;

• Enforce National and International laws relating to the movement of biodiversity related products. • Check on description, classification and valuation of all biodiversity related imports and exports. • Check on licensing requirements governing the import and export of fauna and flora and related products and any other irregularities affecting the functioning of Customs operations. • Promote the development programmes of the country through sustainable imports and exports of fauna and flora in a manner which will not harm biological heritage of the country.

17.2.3 Consumer Protection Unit (CPU)

The main objective of the Unit is protection of consumer rights and implementation of related laws. The functions include;

• Implement requirements of Intellectual Property Act (IPR), Sri Lanka Standard Institute (SLSI), Cosmetic Devices and Drugs Act (CDDA), Atomic Energy Authority Act (AEA), Consumer Affairs Authority Act (CAA), Health Department and Defense Ministry stipulated with regard to Customs related laws in order to combat any violations or frauds. • Update Customs procedures in keeping with regulations of respective authorities. • Deploy staff from CPU at examination points whenever if necessary.

17.3 Performance in 2010

Table 17.1: Narcotics detections

Date Case No Description Quantity Kg. 28.01.2010 NB/280/2010 Methamphetamine 9.010 24.02.2010 NB/281/2010 Heroin 0.720 12.03.2010 NB/282/2010 Heroin 0.560 03.08.2010 NB/283/2010 Heroin 0.486 11.08.2010 NB/284/2010 Methamphetamine 8.085 16.08.2010 NB/285/2010 Cocaine 3.978 09.12.2010 NB/286/2010 Heroin 34.771

Table 17.2: Detections other than Narcotics

Date Case No Description Value Rs. 15/03/2010 BIA/CASE/22/2010 75 CTN of Cigarettes Not available 14/05/2010 BIA/CASE/36/2010 75 CTN of Cigarettes 142,000 21/05/2010 BIA/CASE/38/2010 54 nos. Bracelets 281,625 03/08/2010 BIA/CASE/63/2010 17 kg of Hans 255,500 25/09/2010 BIA/CASE/92/2010 3840 tablets of 1,187,800 misoprostat 30/09/2010 BIA/CASE/96/2010 Mobile Phones and 328,500 Cameras 10/10/2010 BIA/CASE/110/2010 286g of raw gold 1,251,250 10/10/2010 BIA/CASE/111/2010 188.7g of raw gold 825,563 10/10/2010 BIA/CASE/112/2010 839.7g of raw gold 5,132,751 11/10/2010 BIA/CASE/113/2010 gemstones 63,025 13/11/2010 BIA/CASE/142/2010 gemstones 784,312 14/11/2010 BIA/CASE/143/2010 Mobile Phones 130,940

Table 17.3: History of Narcotic Detention (Kg)

Time Hashish Methamp Heroin Hashish Opium Cannabis Cocaine Period Oil hetamine 1984-88 82.581 26.393 6.98 0.65 0 0 0 1989-93 112.49 56.093 69 1.8 8.764 0 0 1994-98 69.669 0.96 20 0 0 0.0028 0 1999-03 76.046 0 0 0 0 0 0 2004-08 42.139 5.458 0 0 0.254 0 0 2009 2.798 0 0 0 0 0 0 2010 36.547 0 0 0 3.978 0 17.095 Total 422.27 88.904 95.98 2.45 12.996 0.0028 17.095

Table 17.4: Significant cases of BPU

Case No. Description Results Undersized live Forfeited and released to the sea; 1 BPU/CASE/2010/01 lobsters Penalty Rs. 200,000/- Undersized live Forfeited and released to the sea; 2 BPU/CASE/2010/03 lobsters Penalty Rs. 200,000/- Undersized live Forfeited and released to the sea; 3 BPU/CASE/2010/03 lobsters Penalty Rs. 200,000/- Handed over to National 4 BPU/CASE/2010/05 Live ferrets Zoological Gardens 07 kg of 5 BIA/CASE/43/2010 Forfeited; penalty Rs: 10,000/= Kothalahimbutu Undersized 6 BPU/CASE/2010/12 Forfeited: Penalty Rs. 3,000,000/- chanks Undersized 7 BPU/CASE/2010/13 Forfeited; Penalty Rs. 100,000/- Chanks

18 Post Clearance Audit (PCA) Directorate

18.1 Introduction

Post Clearance Audit Directorate, which previously functioned under the Directorate of Valuation, aims to strengthen current work to make Customs more efficient, based on principles of transparency, integrity, accountability and professionalism. It contributes to the speedy movement of legitimate goods. PCA assists the implementation of the WTO Customs Valuation Agreement. In addition, it highlights the importance of embracing the adoption of modern techniques in Customs control, such as risk management, profiling and selectivity. PCA is regarded as one of the most effective Customs processes in verifying the level of compliance of traders and detect commercial fraud, especially valuation fraud.

18.2 Major Functions

• To verify the accuracy and authenticity of Customs declarations over the past period • To recommend audittees to take necessary measures for amendment of their incorrect declarations • To encourage audittees to enhance their compliance with Customs laws and regulations • To provide input for the risk management process

18.3 Performance in 2010

Table 18.1: No of Cases Finalized and Recoveries of short levies

PCAB (A) PCAB (C) No of cases detected 49 08 No of cases finalized 25 01 No of cases pending 24 07 Amount of penalty recoveries (Rs. Mn.) 34 Nil Recoveries by Add. Entry (Rs. Mn.) 15.3

Refunds Branch refunded Rs. 26 Mn. in 2010 as compared to Rs. 6 Mn. in 2009 and Rs. 34 Mn. in 2008. The following Table shows progress regarding files handled by the Directorate during 2008 – 2010.

Table 18.2: Import and Export Refund Files

Number of Files Registered Number of Files Finalized Description 2008 2009 2010 2008 2009 2010 Imports 246 42 139 152 75 16 Exports 1 Nil 01 Nil Nil Nil Drawbacks 9 5 09 1 Nil 01

19 Central Investigation Directorate

19.1 Introduction

The Central Investigation Directorate has been established for the purpose of conducting Customs investigations efficiently and effectively, maintaining a Central Case Register for the cases detected in the Department and to handle the distributions of rewards. The objectives of the Directorate are to centralize all Customs investigation and conduct them in professional manner, maintain Central Case Register more efficiently and effectively and centralize reward distribution and attend to them in transparent manner.

19.2 Major Functions

• Detection and investigation into Customs violations • Investigation into the cases detected by other Directorates (other than Special Task & Vigilance – ST & V and Preventive Directorates) • Maintaining Central Case Register (CCR) • Monitor the progress of the investigations conducted by Special Task & Vigilance – ST & V and Preventive Directorates • Update the finalized cases in CCR • Prepare reward distribution of all finalized cases

19.3 Performance in 2010

Table 19.1: Comparison of Performance

2008 2009 2010

Amount recovered as A/ E (Rs. Mn.) Nil 189.2 385.9 Imposed (Rs.Mn.) 89.5 19.7 10.9 Penalties Recovered (Rs. Mn.) 24.6 11.6 9.3 No. of cases detected by CIB 41 25 23 No. of cases finalized by CIB 16 04 05 Cases finalized as “NFA” 02 02 02 No. of total cases registered in CCR 8879 7148 6096 No of cases updated in CCR 5893 5880 4490 No. of reward lists recommended 140 150 168

20 Legal Affairs Directorate

20.1 Introduction

This Directorate was previously known as Legal Affairs Unit headed by an ADC and manned by few officers. Present Directorate is headed by a Director who is assisted by two Deputy Directors, Two Superintendents, One Deputy Superintendent and Assistant Superintendents. The administration and supervision of the Prosecution unit functions of the Preventive and the Baggage Divisions have been brought under Legal Affairs Directorate.

20.2 Major Functions

• Providing legal advice to the other Divisions. • Seeking Attorney General's advice on behalf of the Department. • Continuous review of the Customs Law. • Attending to matters relating to International Law, International Conventions, Memorandum of Understanding, Agreements with other Customs Administrations. • Attending to all Supreme Court and Court of Appeal cases filed against or on behalf of the Department.

20.3 Performance in 2010

The Legal Affairs Directorate arranged many consultation, meetings, discussions, and educational programmes to the Inquiring Officers and Prosecution Officers to correct the shortcomings and to update the latest development in the legal field. Every case referred to this Directorate was attended to on time. Every consultation and discussion was conducted on time while court cases were regularly attended to and followed up.

21 Central Intelligence Directorate

21.1 Introduction

The Central Intelligence Directorate is responsible to provide more effective, timely, accurate and relevant intelligence to operational units and to senior management in support of achieving their goals in collection of revenue and trade facilitation while protecting the community. The objectives are;

• To ensure furnishing of intelligence in support of decision making to achieve the Department objectives • Be the National Contact Point (NCP) and Focal Point for sharing of intelligence and enforcement assistance. • To emphasize the operation of intelligence led control system on cargo and passenger clearance • To ensure national and international security on cross border cargo movement

21.2. Major Functions

• Gathering of information. • Maintaining/exploiting of Databases. • Analyzing and developing Intelligence. • Dissemination of Intelligence. • Acting as the NCP for Regional Intelligence Liaison Office of the Asia & Pacific (RILO A/P) and focal point for international enforcement coordination. • Participating as a member of the Department Risk Management Committee (RMC). • Intercepting high risk cargo consignment by reviewing cargo manifest and based on intelligence and cause investigations. • Operating of Container Security Initiative project (CSI) at the Colombo port. • Functioning as the coordinating point on the National security issues. • Coordinating examination of selected consignments by Sri Lanka Navy for Security purposes. • Conducting of Customs inquiries and prosecute offenders • Disposing of forfeited goods and dispensing proceeds

21.3 Performance in 2010

Table 21.1: Information received and distributed

2008 2009 2010 No. of information received through the PIRD 6 96 66 44 From other sources (fax, letters, News) 109 25 25 Total 205 91 69 Number of intelligence disseminated to other 63 22 12 branches for action Number of strategic intelligence assessments Nil 01 03 furnished to management

Table 21.2: No. of Intelligence Alerts Distributed

2008 2009 2010 CIU Alert 06 04 08 RILLO, WCO, CEN Alerts 00 01 03

Table 21.3: No. of Intelligence Analysis & Monthly Publications Distributed

2008 2009 2010 CIU Intelligence Analysis Reports 01 Nil Nil RILO Monthly Bulletin 03 04 08

Box 21.1

2009 2010 Number of previous offenders’ details furnished to 1234 2513 various branches: Number of detentions made by Sri Lanka Navy for 267 414 National Security purpose

Number of detections found Nil Nil

6 PIRD: Public Information Receiving Desk

Table 21.4: Liaisons with Local & Foreign Investigation and Intelligence Agencies:

Agency Number of Number of Replies Number of Replies requests Received not received

2008 2009 2010 2008 2009 2010 2008 2009 2010

RILO-China 01 02 05 - - - 01 02 05 DRI- India 23 03 09 13 07 09 10 06 - Sri Lanka Embassy 12 08 18 11 07 18 01 01 - in Japan Sri Lanka Embassy ------in UK HM Customs UK 01 02 02 01 - 02 - 02 - Australia 01 - 01 - - 01 01 - - Sri Lanka Embassy 08 02 05 07 02 05 01 - - in Singapore UAE - 01 - - - - - 01 - Japan Customs 02 01 01 02 01 01 - - - France - 01 - 01 - - New Zealand - - 01 - - 01 - - - Internal Liaison Office Pakistan Customs 04 - 01 01 - 01 03 - - Indonesia Customs 02 - - 01 - - 01 - - OLAF 02 - - 01 - - 01 - - China Customs 02 ------RILO Italy 01 ------Maldives Customs 01 ------Thailand Customs - - 02 - - 02 - - - Nepal Customs - - 01 - - 01 - - - Iran Customs - - 01 - - - - - 01 Malaysia Customs - - 01 - - - - - 01 Vietnam Customs - - 01 - - 01 - - 01 ICE ATTACHE 01 - 01 - - - - - 01 (India) Thailand Embassy - - 01 - - 01 - - -

Box 21.2

2008 2009 2010 Investigation Assist. to Other Countries from Sri Lanka DRI – India 3 8 5 Turkey 1 Turkey Customs 1 UK 1

Progress in CSI Programme: No. of Transit/Transshipment containers scanned 426 288 230 No. of Local containers scanned 32 24 18 No. of containers physically examined 1 - 62 No. of containers where anomalies found NIL - 20

Table 21.5: Performance in Law Enforcement:

2008 2009 2010 No. of cases initiated/detected by the staff during the year 04 30 No. of cases initiated upon information/intelligence 62 28 No. of cases withdrawn 65 01 03 Total No. of cases registered 67 61 Total No. of Pending cases at the end of year 2008/2009 39 25 No. of cases Finalized during the year 33 34 43 No. of cases Pending at the end of year 50 57 46 No. of cases where penalties/forfeitures recovered 20 20 No. of cases finalized with no Customs offences 04 18

Table 21.6: Types of Offences detected

2009 2010 Misclassification 03 03 Non-declaration 17 06 Undervaluation 08 10 Concealment 03 02 Violations of Exchange Control Regulations 17 - Violations of Import & Export Control Regulations 02 05 Submission of forged/falsified documents 05 - Misuse of duty free concessions - - Violations of Fauna and Flora Protection Regulations - - Violations of IPR Act - - Other 04 04

Significant Cases during the Year at CIU

1. A container arrived from Dubai consigned to Government Printers, Colombo, declaring the contents as Printing Machines, which actually contained 9,310,000 sticks of cigarettes valued at Rs. 18,620,000. This was detected based on information received through PIRD. Further investigations revealed that this container was awaiting to be removed illegally from the port. Attempted defraud of revenue was Rs. 160,667,512.

2. Three consignments of Ethanol which were under license, were detected consigned to three different consignees, declared as Toluene, Unsaturated polyester resins, and Iso Propyle Alcohol.

Consignment 1: Four containers STC 320 drums of Toluene, contained 256 drums of Ethanol and only 64 drums of Toluene was found. Total value of all goods was Rs. 4, 078, 900 and the total duty and other levies to be recovered was Rs. 12,840,159.

Consignment 2: A container STC 80 drums of Unsaturated Polyester Resins arrived from Malaysia, actually contained 80 drums of Ethanol. Total value was Rs. 2,528,015 and the duty and other levies to be recovered was Rs. 3,800,375.

Consignment 3: A consignment of 18 drums STC ISO Propyle Alcohol was found containing Ethanol which arrived from Singapore. Total value was Rs. 2,226,305 and total duty to be recovered was Rs. 3,701,286.

DIRECTORATES DIRECTLY UNDER DGC

22 Appeals Directorate

22.1 Introduction

The Appeal Directorate is a new Directorate introduced with the reform to establish a separate arm under DGC to administer the matters related to appeals made on the decisions made by the Customs officers in performing duties under the Customs and related laws. The newly established Directorate was in initial stage so that there was no performance to be recorded in 2010. The following note describes importance of establishing an Appeal Directorate:

It is a general principle that all Customs matters must be treated in a transparent and fair manner. As a consequence there is another general principle that all persons who deal with Customs must be afforded the opportunity to lodge an appeal on any matter.

Situations may arise in which a decision or omission of the Customs is not acceptable to the person directly affected by it. It is therefore important that provision be made for the person concerned to be given, upon request, an explanation of the reasons for the decision or omission and for the person to have a right of appeal to a competent authority. The competent authority may be the Customs themselves, another administrative authority, one or more arbitrators, a special tribunal and, in the final instance, a judicial authority.

This right of appeal ensures protection for the individual against decisions of Customs that may not be in compliance with the laws and regulations which they are responsible to administer and enforce. It also ensures protection against omissions by Customs in any matter.

At the same time, the review of challenged decisions or omissions by a competent authority and the verdicts of these reviews can be a suitable means of ensuring uniform application of the laws and regulations. These verdicts may or may not constitute legal precedents or official interpretations that will relate to like or similar disputes to be settled in the future, therefore actions may be taken to incorporate them when rewriting the Customs ordinance shortly.

23 Special Tasks and Vigilance (STVD) Directorate

23.1 Introduction

Main objective of this Directorate is to provide DGC with an arm of control and to be vigilant over all activities of the Department. This Directorate was introduced as Revenue Tasks Force prior to the reform scheme and the scope was to check the irregularities affecting the smooth functioning of Customs operations and the revenue. In new scope, more responsibilities have been assigned to be vigilant over all activities of the Department. STVD performs various enforcement activities upon intelligence gathered by the staff as well as information received from the public.

23.2 Major Functions

• Promoting integrity and eliminating irregular practices within the Department. • Responding promptly in case of complaints and allegations. • Assisting DGC to manage crisis situations by mobilizing resources. • Intercept and re examine any goods imported or exported and verification of the correctness of the procedures followed. • Intercept or search passengers or passenger baggage at air port or UPB warehouses. • Maintain vigilance over the clearance of goods in the parcel post, courier services and other special procedures for clearance of goods.

23.3 Performance in 2010

During the calendar year 2010, STVD was able to generate the revenue amounting to Rs. 431.6 Mn. in the forms of Customs Duty and other taxes, sales proceeds from forfeited goods and penalties. Chart 23.1 depicts type of consignment recovered the revenue.

Chart 23.1: Composition of Revenue recovered

Table 23.1: Comparison of consignment intercepted during 2009 - 2010

Task 2009 2010 Commercial Imports(Sea Freight & Air Freight) 827 1114 Accompanied Passenger Baggage at BIA 1000 1452 Unaccompanied passenger Baggage (UPB) 610 960 Other (EMS, Bonding, BOI & Duty Exemptions) 12 18 Total Number of Consignment intercepted/Projected 2449 2116

24. Finance Directorate

24.1 Introduction

Finance Directorate is mainly responsible for preparation of revenue accounts, final accounts of the Statutory Funds and Appropriation Accounts. Formulating financial strategy, expenditure control and cash management are the main functions of this Directorate in achieving the objectives of the Department.

24.2 Performance in 2010

Finance Directorate reported total revenue collection from 21 collection centers, by operating 11 sub collection Bank Accounts, linked with main collection and Treasury Remittance Accounts at Taprobane Branch in Bank of Ceylon. A sum of Rs. 329.6 billion was collected as Customs Duty and other Customs Deposits. Meanwhile a sum of Rs. 50.3 billion was collected as Excise Duty in Excise Duty Collection Account. Total Collection of Rs. 380 billion was remitted to the State Coffer as Customs revenue collection. On the other hand, a sum of Rs. 7 billion was accounted as revenue for inter government departmental clearance without cash moving. Hence, the total Customs revenue reported was Rs. 387 billion for the year 2010. From the year 2011 onwards, the Directorate may have to open further Collection Accounts for Customs clearance activities in “Out-ports”.

The voted recurrent expenditure approved by the Parliament for the Customs Department was Rs. 1,550,180,000/=, out of which Rs. 1,245,119,292/= was the incurred expenditure. A sum of Rs. 290.3 million had been refunded from revenue in view of over-recovery resulting from inadvertent errors and miscalculations.

In the Customs Department, approximately 1900 employees are being paid salaries each month, out of which, 85 per cent are being paid through bank accounts utilizing the automated system (the Government Salaries Package) called “Slip System.” The same procedure is presently being expanded to incorporate payment of all personal remunerations.

A sum of Rs. 20, 377,750 was released under the distress loans scheme; 15 housing loan applications had been accepted out of 21 forwarded to the respective Banks.

Three funds - namely the Reward Fund, Custom Officers’ Compensation & Management Fund, Overtime & Cargo Examinations Fund are in operation in the Customs Department. While the Rewards Fund is being governed by the provisions of the Customs Ordinance, the other funds are governed by the regulations approved by the Ministry of Finance.

The accounting mechanism of the treasury reporting is done through the deposit Accounts. However, fund accounting is reported as a separate entity. The summary of the performance of fund accounts for the reporting year is as given below.

Table 24.1: Summary of Fund Accounts in 2010 (Rs.) Name Receipts Payment Contribution Cumulative to balance as at Consolidated 31-12-2010 Rewards fund 902,474,770.40 836,746,995.72 457,614,457Fund 249,162,850.00

Compensation 305,901,186.53 30,975,307.24 - 2,854,670,780.00 fund Overtime & 597,667,586.51 564,320,787.00 194,025,021.00 806,380,315.00 Cargo

The following Annual Accounts have been rendered to the Auditor General before the stipulated date.

• Appropriation Accounts • Public Officers Advance ‘B’ Accounts • Seized and forfeited goods advance A/C • Overtime & Cargo Examination Fund • Reward Fund • Compensation & Management Fund

The following two Accounts was delayed for two weeks due to late Accounting adjustment with the treasury:

• Revenue Accounts • Reconciliation Statement of General Deposit.

25 System and Procedure Compliance Audit Directorate

25.1. Introduction

Systems and procedure Compliance Audit Directorate is functioning directly under the Director General of Customs. It is headed by a class I Accountant of the Sri Lanka Accountant’s Service. This Directorate is an independent unit for the control of financial and operational activities. The expectations of creating this new Directorate was to assist the operational Management in systematic improvement to prevent recurrence of irregularities and lapses in integrity, and maintain and improve internal controls in accordance with risks involved.

The scope is to conduct audits assessing the effectiveness and economy of resource utilization (man, money and materials) in all core processes and supporting processes which including in all divisions throughout the Department.

25.2 Major Functions

• Ensure the adequacy, relevancy and adherence of the existing systems in prevention and detection of frauds, malpractices and misuses leading to revenue leakages. • Follow up the implementation of agreed actions. • Bring deficiencies therein to the notice of the related Directorates/operating management. • Make recommendations and improvements to the existing systems and procedures. • Highlight opportunities to reduce costs and increase government revenue. • Facilitate annual risk analysis. • Assist the DGC in good governance.

25.3 Performance in 2010

Table 25.1: Progress of conducting Audits

2009 2010 Number of audits conducted 101 73 Number of queries raised 80 65

Some of the other salient features of this year’s performance were conducting 3 No’s of Departmental Audit and Management Committee Meetings, active participation in to the Ministry Audit and Management Committee which the observations/findings of this Directorate were appreciated and making fruitful recommendations/suggestions to reduce the loopholes/ risk leading to revenue leakages.

26 Statistics Directorate

26.1 Introduction

Statistics Directorate of Sri Lanka Customs is responsible for collection, preparation, analysis and distribution of statistics on international trade. The booklet titled “External Trade Statistics” printed annually and biannually is the document published for the said purpose. Further, monthly statistics are published in computer printouts format.

26.2 Performance in 2010

Following publications were issued by this Directorate during the year .

• External Trade Statistics – 2009 • Information and Data for 2009 • External Trade Statistics – January – June 2010

In 2010, over 775,000 CusDecs have been received from different CusDec processing units including BOI, and approximately 1.2 Mn. data points had been entered into the computers to prepare external trade statistics. Data processing connected with the ICT Division was commenced in December 2010. That arrangement assists in the preparation of the statistics report at the end of the relevant month, and to minimize shortcomings that can occur in feeding codes and data into the computers.

The trade statistics were sent on time to the Ministries and various government organizations including Central Bank, EDB, Commerce Department, National Fertilizer Secretariat, Consumer Protection Authority, and Sri Lanka Tea Board, and non- governmental organizations such as Chamber of Commerce, UN agencies, foreign embassies.

PART THREE

Performance of the Excise (Special) Division ––– 2010

Excise (Special Provisions) Division

1. Introduction

Excise (Special Provisions) Act No. 13 of 1989 amended by Act No 40 of 1990 and Act No 8 of 1994 is the legal basis for implementation of the Excise (Special Provisions) policies of Government of Sri Lanka.

Excise (Special Provisions) Division which is operating under the Department of Sri Lanka Customs performs an important national role as the Government Agency mandated with the responsibility of enforcement of the provisions of the Excise (Special Provisions) Act and regulations made there under for the well being of the nation.

The Mission of the Excise (Special Provisions) Division is to efficiently collect Excise revenue payable on articles manufactured within Sri Lanka or imported into Sri Lanka, and thereby contribute to the national development process.

The objectives of the Excise (Special Provisions) Division can be broadly identified as follows:- • Implementation of Excise (Special Provisions) Act.No.13 of 1989 • The collection and protection of revenue from articles come under the Excise such as Petroleum, L.P.Gas, Cigarettes, Soft Drinks, Race Publications, Vehicle Imported, Locally Assembled Vehicles, Paints, Polythene and other Excisable articles.

2. Major Functions

• Collection of revenue accurately through supervision and control all Excisable goods. • Acting as the law enforcement authority in respect of the Excise (Special Provisions) Act. • Engage in activities pertaining to the imposition of Excise Duty.

3. Major Policy Changes during the year

a) Exempted Paints and Varnishes (H.S.Code 32.08, 32.09, 32.10) from Excise Duty from 01 st of June 2010. b) Exempted Polythene Bags (H.S.Code 39.23) from Excise Duty from 23 rd of November 2010. c) Imposed Excise Duty for Polythene of Ethylene in primary form (H.S.Code 39.01) from 23 rd of November 2010.

4. Performance in 2010

Table 4.1: Revenue Performance (Rs in Million) 2008 2009 2010 Cigarettes 36,463.20 37,670.16 40,642.7 Petroleum 4,449.31 7,854.18 5,649.7 Motor Vehicles (Local assembled) - 0.11 15.8 Soft drinks 784.30 750.31 949.6 Race Publication 9.54 9.14 9.3 Electrical items (Local) others 144.51 171.16 284.7 Electrical items (Cusdec) Payment - - - Liquor Tax - - - S R L. (Local) 1,785.48 710.70 564.3 Paints & Polythene 352.40 277.49 213.0 Court cases 27.29 27.29 4.9 L.P.Gas 5.70 526.34 1.6 TOTAL 44,021.73 47,996.88 48,335.6

4.2 Expenditure

There is no separate Expenditure scheme from 2010 and all financial activities had been done utilizing the Departmental vote.

4.3 Legal Activities

Steps have been taken to recover tax and penalties by instituting legal actions under the Excise (Special Provisions) Act, against the institutions who have defaulted the payment of Excise Duty. Details are given below.

01. No of Courts appeared - 20 02. No. of Cases carried forward - 279 03. No of Cases filed during the year - Nil 04. No. of Cases finalized during the year - Nil 05. Recovered amount during the year Rs. 4,893,305.66

5. Organizational Structure of the Divisions

To fulfill the duties of the Excise (Special Provisions) Act. The following officers performed in the division during the year.

Designation Approved Cadre The staff as at 31.12.2010

01. Director General of Excise 01 01 (D.G.C. holds this post) 02. Director Excise (S.L.A.S.) 01 - 03. Deputy Director of Excise (S.L.A.S.) 02 - 04. Asst. Director of Excise (S.L.A.S.) 06 - 05. Accountant 01 01 06 Administrative Officer 01 01 07 Excise Tax Officer 20 19 08 Excise Inspector 07 07 09. Translator 02 - 10. Shroff 01 01 11. Clerk 07 02 12. Stenographer 02 01 13. Typist 04 02 14. Driver 07 02 15. O.E.S. 06 02 Total 68 39