Customs Reform in Afghanistan: Moving Between Introduced and Pre-exis=ng Structures Afghanistan Public Policy Research Organizaon December 2011 Acknowledgements This paper is a product of a research project funded by Harakat – Afghanistan Climate Investment Facility. APPRO expresses its sincere thanks to Harakat for their support and feedback on the various aspects of this research. This research would not have been possible without the acEve parEcipaon and assistance from the many traders and customs officials who were approached by APPRO. APPRO takes full responsibility for all omissions and errors. About the Authors Lead authors for this paper are Saeed Parto (Director of Research) and Ehsan Saadat (Researcher). Ahmad Shaheer Anil (Research and Evaluaons Manager) managed the fieldwork. Rebecca Gang edited this report. About APPRO Afghanistan Public Policy Research Organizaon (APPRO) is an independent social research organizaon promoEng social and policy learning to benefit development and reconstrucEon efforts in Afghanistan. APPRO is registered with the Ministry of Economy (Registraon Number: 1212) as a not-for-profit, non-government organizaon and headquartered in Kabul, Afghanistan. APPRO’s mission is to facilitate criEcal dialogue on policy and reconstrucEon issues. This mission has two components. The first component is to measure development progress against strategic reconstrucEon objecEves and provide insights into how to improve performance against the milestones set by the Government of Afghanistan and the internaonal donors. The second component is to train and mentor a pool of Afghan researchers to conduct research consistent with internaonally recognized standards for social scienEfic research. Research at APPRO is undertaken to address exisEng and pressing knowledge gaps in the policy making process and to advance the learning of researchers, academics, and decision and policy makers at all levels. (c) 2011. Afghanistan Public Policy Research Organizaon. Some rights reserved. This publicaon may be reproduced, stored in a retrieval system or transmi\ed only for non-commercial purposes and with wri\en credit to APPRO and the authors. Where this publicaon is reproduced, stored or transmi\ed electronically, a link to APPRO’s website www.appro.org.af should be provided. Any use of this publicaon falling outside of these permissions requires prior wri\en permission and can be sought by emailing [email protected] or by calling +93 700 538 081. i Table of Contents ExecuEve Summary ................................................................................................................... 1 1. IntroducEon .......................................................................................................................... 4 2. ObjecEves and Methodology 5................................................................................................. 3. Customs Reform Since 2001 6.................................................................................................. 4. Key findings 9........................................................................................................................... 4.1. Hairatan 11....................................................................................................................... 4.2. Islam Qala 11.................................................................................................................... 4.3. Torkham 12....................................................................................................................... 4.4. Common Challenges 13.................................................................................................... 5. Conclusion 14........................................................................................................................... 6. Recommendaons 16.............................................................................................................. Bibliography ............................................................................................................................ 19 Appendix 1: Customs Reform Programs and Projects ............................................................. 20 Appendix 2: Customs Clearance Procedures (in English and Dari) ......................................... 21 iii Glossary APPRO Afghanistan Public Policy Research Organizaon ASYCUDA Automated System for Customs Data HOO High Office of Oversight and AnEcorrupEon MAIL Ministry of Agriculture, Irrigaon and Livelihood MoCI Ministry of Commerce and Industry MoF Ministry of Finance MoI Ministry of Interior UNCTAD United Naonal Conference on Trade and Development UNDP United Naons Development Programme ii Execuve Summary Afghanistan is highly dependent on imports. A funcEonal customs system with minimal or no leakage in duty collecEon can be a reliable and sustainable source of funds for the Government of Afghanistan. Recognizing the importance of a fully funcEonal customs system as a source of government revenue, efforts have been made by a long list of internaonal donors to modernize and systemaze the customs system in Afghanistan. This research was carried out from February to August 2011 to assess the impact of the changes made since 2001 and to idenEfy pathways for future planning and programming in aempts to insEtute a fully funcEoning customs system. The raonale for this research was that further plans to reform the system need to be based on a close examinaon of what has been accomplished to date and the idenEficaon of the barriers and bo\lenecks that Afghan traders conEnue to face in moving merchandize to and from the border entry points. The research finds that a change of the norms that underlie corrupEon in the customs system requires all manner of measures ranging from procedural adjustments (short term) to increased oversight and enforcement (medium term) to value-based behavioral change among the customs system’s officials and traders through awareness raising, educaon, and a system of incenEves and disincenEves (long term). Failure to aend to the mulE-layered needs of the customs system runs the risk of a general weakening of trust in the system by legiEmate naonal and internaonal investors who would be either dissuaded from invesEng due to a high level of risk and unpredictability or, if they decide to invest, are likely to tolerate and, by default, help perpetuate corrupt pracEces. A net outcome of these trajectories will deprive Afghanistan of desperately needed legiEmate trade acEvity and direct investment by naonal and internaonal investors. The heavily funded mulE-donor and mulE-year project to build and maintain Afghanistan’s customs system is likely to be a slow process. The duty rates have to be thoughkully set to encourage importers to conEnue to go through the system rather than outside it. Duty charges need to be enEcing enough to keep the importers coming through legal channels so that the Government conEnues to collect customs revenue. Once the acceptable threshold for duty levels is passed and the duty is deemed too high by the traders the licit importer is tempted to go through informal / illegal channels, causing revenue losses for the Government. Adequate salaries are but one measure in the overall package of measures that needs to be put together in the reform of the customs system. If it is not possible to increase salaries immediately and sufficiently, other innovave incenEves need to be deployed to bring bribery under control through, for example, commission-based bonuses to the customs officials. Other forms of assistance to increase the capacity and capability of customs’ employees, such as appoinEng internaonal advisors at ports of entry, should be done more thoughkully. 1 There is a need to strengthen law enforcement, yet there has to be recogniEon that enforcing the law is omen a funcEon of the ability to enforce and a full set of incenEves and disincenEve for those subjected to the law. Consistent law enforcement in the long run is likely to result in changed behavior by the officials and the traders alike. For this to happen, the users of the customs system (customs officials and traders) will have to become part of the soluEon by being included n the discourse to address corrupEon. The problems and bo\lenecks in the customs system are less to do with inadequacies in the infrastructure and procedures and more with systemic corrupEon. Changes in informal insEtuEons such as corrupEon take a long Eme to become established, and will require all manner of incenEve and disincenEve which may be monetary and non-monetary, procedural and regulatory and, most importantly, innovave and interacEve to maximize learning by doing. The formalizaon of the role of komishenkars in the customs system serves as a good example. There is no immediate one-Eme soluEon to the bo\lenecks in the customs system and currently there is li\le or no incenEve for the users of the system to change it. Much could be accomplished, however, through reform in wages and/or other forms of remuneraon, increased and transparent oversight, and, most importantly, engagement and learning with a view to innovate and effect insEtuEonal change. Key Recommenda,ons - ConEnue the building and modernizaon of customs infrastructure. At major points of entry, i.e., Hairatan, Islam Qala, and Torkham, Afghanistan’s customs system is one of the most aended to and modernized in South / Central Asia and the Middle East. Efforts to maintain the current funcEons and increase adherence to the procedures