Collection of revenue has historically been the cornerstone of a Customs administration's responsibilities. For a number of years, Customs has been actively involved in initiatives involving the protection of society and trade facilitation but more recently the role of Customs has diversified. Issues such as the fight against counterfeiting, countering terrorist threats to global trade, and the preservation of the environment now feature high on the agenda of international Customs work programmes too.

Alongside these important topics, revenue collection continues to be an area of concern for Customs administrations especially after the global financial crisis which led to a downturn in international trade and inevitably hit government revenues. And now as the world nurtures economic recovery, revenue security remains a high priority item.

Additionally, the global trend in the reduction of Customs duty rates, stimulated by WTO trade rounds, can potentially impact on revenue collections too. However, it must be borne in mind that lowering duty rates acts a stimulus to trade which, as well as benefiting the economy of importing and exporting countries, can counteract the effect of lower rates.

In response to the revenue security concerns expressed by its Members, now numbering 176, the WCO took a number of actions that included interfacing with the G20, enhancing capacity building delivery, and launching the WCO Revenue Package – a portfolio of WCO tools and instruments relevant to revenue collection and for identifying gaps in capacity.

Although focused primarily on the technical aspects of revenue collection, the WCO Revenue Package provides assistance to WCO Members in identifying the correct amount of revenue – namely, the amount legally due. It enables WCO Members to ensure that they have taken the necessary steps to implement appropriate international requirements and take advantage of the various existing WCO training modules and guides.

As there may be gaps in the tools and instruments currently available, efforts are underway to identify and consider how to address those gaps. This could include the sharing of experiences and best practices between WCO Members or the provision of further guidance by the Secretariat, even the creation of new standards where appropriate. Thus the WCO Secretariat provides an ideal platform for its Members to achieve their goals.

To further assist its Members, the WCO Secretariat has also set about organizing a number of workshops and meetings, and conducting research, all aimed at highlighting the usefulness of this revenue security tool which supports efficient and effective revenue collection. It can be mentioned that India was represented at one of these workshops that was held for the Asia-Pacific region in Korea during December 2009. In progressing towards its goals, the WCO looks forward to continuing its dialogue and cooperation with India on revenue-related matters.

Revenue and tariff classification

The Harmonized Commodity Description and Coding System – popularly known as the Harmonized System or the HS – is one of the most successful instruments ever developed by the WCO. Its multipurpose goods nomenclature is used as the basis for Customs tariffs and for the compilation of international trade statistics. Owing to its versatile structure, the HS is also used for many other purposes – trade policy, rules of origin, monitoring controlled goods, internal taxes, freight tariffs, transport statistics, quota controls, and economic research and analysis.

Governments and businesses alike use the HS as a unique way of identifying and coding merchandise in order to facilitate international trade including the application of Customs regulations. The HS is, therefore, an important instrument not only for the WCO but also for all parties, public or private, involved with world trade.

As of 10 April 2010, it is being used by more than 200 countries and Customs or economic unions across the globe, 137 of which are Contracting Parties to the HS Convention. Given its global application and the fact that it regulates almost 98% of world trade, the HS has become the “language” of international trade.

While the HS has many uses, the primary use for the present and the foreseeable future is still the collection of Customs duties and taxes. Of the WCO's 176 Members, approximately 80% can be characterized as “developing” (in various stages of economic development). A large number of these countries depend – and will continue to depend – to a great extent on Customs duties as one of the key sources of national revenue. This only serves to emphasise the importance of the HS for day-to-day Customs work.

Goods need to be properly classified in order to ensure correct revenue collection, and fair and uniform treatment of traders. The HS' legal provisions ensure that it is interpreted and applied uniformly which facilitates Customs controls and international trade. These provisions are supported by the HS Explanatory Notes which are used to officially interpret the HS.

Since coming into force on 1 January 1988, the HS has been amended five times; in 1992, 1996, 2002, 2007 and the latest amendment which will go live on 1 January 2012. These amendments have ensured that the HS retains its central role in governing world trade, making it dynamic and always fit for purpose. India acceded to the HS Convention on 23 June 1986 and has applied its provisions since the Convention's inception in 1988.

But what will the 2012 amendments mean for Customs and economic operators?

Environmental and social issues of global concern are the major feature of the 2012 version, particularly the use of the HS as the standard for classifying and coding goods of specific importance to food security and the early warning data system of the United Nations Food and Agriculture Organization (FAO).

The volume of amendments within, for instance, Chapter 3, for the separate identification of certain species of fish and crustaceans, molluscs and other aquatic invertebrates, is eye-catching. However, the modifications aim at improving the quality and precision of trade data in these commodities. The amendments include, inter alia , improved specifications for species from the Southern hemisphere. These amendments will enable economic trends in products other than those familiar to North Atlantic consumers to be monitored.

In the same vein, new subheadings have been created for the separate identification of certain edible vegetables, roots and tubers, fruit and nuts, as well as cereals. HS 2012 also features new subheadings for specific chemicals controlled under the Rotterdam Convention and ozone-depleting substances controlled under the Montreal Protocol. Both of these Conventions form part of a body of instruments put in place to protect the environment.

Other amendments resulted from changes in inter national trade patterns. These include deleting more than 40 subheadings due to the low volume of trade in specific products, separately identifying certain commodities in either existing or new headings, and reflecting advances in technology where possible. In addition, a number of amendments aim to clarify texts to ensure uniform application of the HS goods nomenclature.

While January 2012 may seem far off, the WCO Secretariat is working on the development of requisite correlation tables between the old (2007) and new (2012) versions of the HS, and on updating HS publications, such as the Explanatory Notes, the Compendium of Classification Opinions, the Commodity Database and the Alphabetical Index.

Customs administrations also have a huge task to ensure timely implementation of HS 2012, as required by the HS Convention. They are therefore encouraged to begin the process of implementing HS 2012 in their national Customs tariff or statistical nomenclatures. Officials of the Indian Central Board of Excise and Customs participated actively in the review process, namely, the review of HS 2007 leading to the adoption of amendments that will be reflected in HS 2012. Their keen participation was well appreciated by the Secretariat and Members of the WCO, and India is on track to implementing HS 2012.

Of course it should be emphasised that the amendments to the HS nomenclature should not affect applied Customs duty rates which, while not a WCO matter, are of concern to the WTO and its members particularly with respect to tariff concessions.

This whole package of amendments will ensure that the 2012 version of the HS is up to date and remains so for the years to come despite rapidly changing product features. The next version of the HS is scheduled to appear in 2017.

An efficient Customs service is vital to national economic development and social prosperity across the globe. A Customs tariff instrument that reflects the latest developments in trade patterns and product technology is an indispensable tool to attain national objectives. HS 2012 reflects these changes; the ball is now in the court of the users!

Revenue management in the future

Developing countries were especially harmed when the global economic crisis sparked a significant drop in Customs revenue collection owing to the plunge in international trade volumes because the bulk of their national revenue comes from Customs duties. To assist its Members, the WCO organized a Revenue Management Conference to foster discussions on methods for fair, effective, and efficient revenue management.

The conference took place on 10 and 11 December 2009 at WCO headquarters and was attended by over 100 participants from all six WCO regions. High-calibre speakers included a number of Customs Directors General, officials from international organizations such as the IMF, the OECD, and the World Bank, an academic from the Stockholm School of Economics, and the Chair of the WCO Private Sector Consultative Group.

Participants reached a number of key conclusions at the end of the conference:

•  While there are several organizational models, there is no “one size fits all” solution. Various organizational models exist for revenue management and decisions on what model to adopt should be guided by a country's economic, political, and demographic characteristics, and its revenue collection objectives and expectations.

•  Strategy and leadership are more important than organizational structure. In the reform process when strategy and leadership are successful, the appropriate structure generally follows. Strong leadership can generate sustainability and improved performance. Strategies touted by speakers included, among other things, promoting voluntary compliance, forging an outcome-oriented system, and upgrading enforcement capacity.

•  Successful revenue management reform requires hard work. Accessibility of data, expertise, the cultural variance between Customs and tax along with the reduction in administrative expenses requires thoughtful consideration.

•  WCO tools and instruments can contribute to successful revenue collection. The implementation of the Revenue Package (see below), Authorised Economic Operator (AEO) programmes, and the revised Kyoto Convention (RKC) on the simplification and harmonization of Customs procedures can lead to a more streamlined revenue system,bette r resource allocation and vigorous Customs-business partnerships.

•  Revenue collection should be fair, effective and efficient. Consideration should be given to renovating revenue systems such as automated collection and remittance processes, electronic fund transfer mechanisms, and waivers of financial guarantee for compliant traders. Consistency and predictability in the operation of Customs and tax agencies are also beneficial features for improving revenue management.

•  Reduced corruption can lead to increased revenue. In revenue management, corruption does not cause inefficiency, inefficiency causes corruption. In practice Customs should simplify Customs procedures, use IT and risk management to reduce officer discretion, subscribe to the principles of the WCO revised Arusha Declaration on integrity, conduct regular auditing, and create a robust division for combating corruption and for identifying potential areas where it could flourish.

•  Information exchange is vital in addressing the informal trade problem. New technology and booming online transactions pose a challenge for Customs to obtain information on this trade and proper evidence for prosecuting fraudulent activities. Information exchange between Customs administrations serves as an effective tool for checking evidence. A notable approach is to formalise informal traders, which includes giving them a single taxpayer number, introducing simplified tax provisions and conducting educational campaigns and tax popularisation exercises among informal traders.

Clearly there is a need for further revenue management conferences and the WCO has taken this need on board in planning future events to enable discussions around this topic to continue to be explored.

While the WCO keeps revenue issues on its radar, revenue transformation initiatives are also underway in India which is undertaking a major overhaul of its Customs and tax administration that will include the introduction of a Goods and Services Tax (GST) through the amalgamation of a number of taxes at the Federal, State or Regional level.

The Indian Customs administration is also leading a very comprehensive and ambitious countrywide computerization project with most Customs documentation now being done online, as part of India's modernization programme. Trade facilitation, risk management, coordinated border management, protection of the environment, trade security, and the use of modern technology along with other important WCO goals, including the WCO's Customs in the 21 st Century vision are being accorded the priority they deserve by India.

I am quite sure that India's approach to Customs modernization and revenue transformation will realise enormous benefits for India and its people.

Better cooperation through Customs-Business partnerships

Taxindiaonline provides a useful service; business-critical information, analyses, expert viewpoints, editorials, and related news covering developments in fiscal matters, foreign trade, and monetary policy. It is important that in this Year of the Customs-Business Partnership – which the WCO launched on 26 January 2010 – Customs and its business stakeholders should make every effort to strengthen and improve their partnership as this will raise performance on all fronts and result in a better and smarter working relationship.

I am confident that the WCO has India's full support in enhancing relationships with the trade and business community. Indeed, we all have a part to play in ensuring that trade continues to be facilitated and secured, and that revenue collection mechanisms continue to be supported as this leads directly to positive economic growth and raised social development.