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8 Table of Contents Page List of Abbreviations i Executive Summary iii 1. Background Methodology 3 2. Progress Analysis 3 3. Problems/Issues and Challenges Problems/Issues Challenges Vision Mission Values Guiding Principles Objectives Impact (Ultimate Objective) Outcomes (Immediate Objective) Strategies and Major Activities Risks and Assumptions Implementation Implementation Strategies Implementation Plan CRMS Action Plan Monitoring Mechanism 45 Annexes Annex 1: Customs Reform and Modernization Strategies and Action Plan 47 Annex 2: CRMSAP Strategic Framework 104 Annex 3: Participants List 110

9 List of Abbreviations AEO Authorized Economic Operator APIS Advance Passengers Information System ADB Asian Developments Bank ASYCUDA Automated System of Customs Data CA Customs Agent C2B Customs to Business C2C Customs to Customs C2G Customs to Government CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora CRM Customs Reform and Modernization CRMSAP Customs Reform & Modernization Strategies and Action Plan DOC DMLI DRI EDI FAQ GATT HR HRD HS ICT ICP Department of Customs Department of Money Laundering Investigation Department of Revenue Investigation Electronic Data Interchange Frequently Asked Questions General Agreement on Tariff and Trade Human Resources Human Resources Development Harmonized System Information Communication Technology Integrated Check Post i

10 ICD IRD IT LAN MOCS MOF MOU MTEF ODS PCA R&D RKC SAD SOP TIA TOR UNCTAD VAT WAN WCO WTO Inland Container/Clearance Depot Inland Revenue Department Information Technology Local Area Network Ministry of Commerce and Supplies Ministry of Finance Memorandum of Understanding Midterm Expenditure Framework Ozone-Depleting Substances Post Clearance Audit Research and Development Revised Kyoto Convention Single Administrative Document Standard Operating Procedure Tribhuvan International Airport Terms of Reference United Nations Conference on Trade and Development Value Added Tax Wide Area Network World Customs Organization World Trade Organization ii

11 Executive Summary A. Introduction Department of Customs has been reengineering its reform and modernization programs within the purview of the Customs Reform and Modernization Action Plan. The CRM started in 2003 with a three year Action Plan and subsequently continued till date. The on going CRM Action Plan is the third strategic document that aimed to transform Nepal Customs to world standards by using the international standards. This Customs Reform and Modernization Strategies and Action Plan (CRMSAP) have been prepared for a period of four years covering 16 th July 2013 to 15 th July B. Progress The progress achievements of the CRM are: Full Achieved Partially Achieved ongoing Not achieved 121 Total Number of Activities % C. Problems/Issues: Major problems/issues of the Customs are: Simplification and harmonization of Customs procedures Long Customs Procedures towards Export and Import Issues of Database Inadequate Preparation for Customs Valuation iii

12 Ineffective Implementation of Post Clearance Audit (PCA) Revenue Leakage Inadequate balance between trade facilitation and regulatory intervention Inadequate level of participation and interaction among stakeholders Lack of business plan D. Vision: Excellence in Customs services to support the economic and social prosperity of Nepal. E. Mission: 'We strive for Customs services to respect clients' time and value for money' building conducive environment for global economic activity to ensure growth, development, social safety and security. Values: (1) Integrity, (2) Impartiality, (3) Responsiveness, (4) Transparency, (5) Mutual respect and courtesy, and (6) Dedication and excellence. Guiding Principles: (1) Reducing Compliance Costs and Time, (2) Help Fair Operation of the Market, (3) Help Export Promotion, (4) Establish Conducive Environment for Investment, (5) Right Taxation for Sound Fiscal Framework, and (6) Coordination F. Results Framework. Objective: The objectives of the CRMSAP are to make conducive environment for economic prosperity in Nepal by improving trade facilitation, reducing transaction costs, and developing human resources for professional stewardship and facilitation in Customs, while at the same time improving revenue collection and border security. Impact (Ultimate): "Responsive Customs administration' by initiating paperless Customs services and Web Based Clearance System. DOC will develop its technical and managerial capacity to attain the ultimate objective. Outcomes Strategies Activities Strategy 1: Facilitate Outcome 1 - Economic 1.1 Study the international conventions and use relevant international standards and iv

13 Competitiveness and Prosperity: Incorporated and assimilated all of the efforts of Customs reform and modernization in a framework to support trade facilitation. Outcome 2 - Enhanced enforcement and compliance and Legitimate Trade and Industry. Strategy 2: Promote communicati on and cooperation (with stakeholders including C2G, C2C and C2B) Strategy 3: Protect Society and environment contemporary best practices as the basis for import and export. 1.2 Notify compliance of WTO Valuation Agreement. 1.3 Review the formalities and documentation requirements for import and export periodically. 1.4 Review the Customs Tariff 1.5 Establish Policy Review Unit 2.1 Promote and improve co-operation with Customs stakeholders 2.2 Facilitate/provide support to expand performance of Customs Agents/stakeholders in transacting Customs business. 2.3 Strengthen relationships with external counterparts and organizations 2.4 Develop Broker Management System 2.5 Enter into Customs Cooperation Agreement with at least two Customs s. 2.6 Enter into MOU with national trade and industry organizations. 2.7 Organise regular Interaction with the stakeholders 2.8 Establish Grievance Handling Committee 2.9 Establish and operate effective Client Service Desks 2.10 Develop social corporate responsibility programs of Customs at border areas. 3.1 Establish Customs as the Frontier Border Service. 3.2 Provide legislative provisions that will enforce Customs capacity to control border smuggling v

14 high revenue yield: Improved adoption of riskmanagement based regulatory compliance. Strategy 4: Ensure compliance with the Law and illegal trade including environmental protection in the areas of CITES and ODS. 3.3 Collaborate/coordinate among border agencies, local agencies, local security wings & Regional Revenue Investigation unit. 3.4 Exchange information among stakeholders to ensure that all of the other agencies are aware of Customs Risk Based Approach 3.5 Review the need to form a separate Customs Security force under the Customs Chief command. 3.6 Develop profiles of sensitive areas of smuggling and form a High Joint Action Unit. 3.7 Establish a flying squad cell at central level. 3.8 Establish a mechanism to effectively control the illicit drugs, fake currencies, pirated and counterfeit goods. 3.9 Increase searches & surprise visits of bonded and non bondedwarehouses suspected of holding illegally imported goods Enhance the capacity of Customs Laboratories 4.1 Raise awareness of all other agencies to the Customs Risk Based Approach to the clearance of imports and exports in line with international best Customs practices 4.2 Strengthen the border Customs clearance monitoring system 4.3 Amend legislation and operate joint inspection to check false VAT invoices to transport goods. 4.4 Arrange to move cargo in containerized containers with Customs seal system vi

15 Outcome 3 - Organizational development and capacity building: Strengthened Strategy 5: Collect Appropriate and Fair Revenue Strategy 6: Modernize and Enhance Customs Management/ 4.5 Introduce system to operate Commercial import export under proper banking channel. 4.6 Strengthen Risk Management 4.7 Establish the principles of Risk Management across the Customs organization with particular emphasis on cargo clearance. 5.1 Make provision for Law compliance strategy 5.2 Improve Compliance environment for Customs Valuation 5.3 Interface valuation database module with the cargo clearance system. 5.4 Carry out risk based checks of declared values on import declarations in DOC. 5.5 Provide access to Valuation officers to import database and relevant reports. 5.6 Establish and maintain a central valuation database in DOC. 5.7 Review the manuals for Valuation & PCA. 5.8 Make the necessary legislative amendments to ensure that all provisions comply with contemporary international best practices on valuation and PCA Strengthen the PCA Office 5.10 Establish PCA units at main Customs offices Improve the HS classification application. 6.1 Restructure the Customs Organization. 6.2 Upgrade and automate the inventory, record keeping and archiving systems 6.3 Enhance leadership, management and professional capacity 6.4 Approve and implement the Human Resources vii

16 Planning and Management Capacity of the Customs.. Master Plan 6.5 Establish and develop the core technical capacity of Customs Strategy 7: Develop Infrastructure and Physical Facilities Strategy 8: Promote a culture of integrity Strategy 9: Enhance passenger 7.1 Approve and implement the Physical Infrastructure Improvement Master Plan 7.2 Design uniform layout for Customs with the emphasis on construction of ICP and ICD 7.3 Acquisition of land in various Customs offices 7.4 Construct the Customs buildings 7.5 Establish Customs Laboratory Network 7.6 Maintain optimal usage of modern technologyled physical facilities for ensuring automated Customs systems 7.7 Renovate the infrastructures of Northern sides Customs and other defined sub Customs 7.8 Modernize Laboratory and develop present laboratory as a Central Customs Laboratory 7.9 Arrange appropriate provision for adequate capital funds to DoC to enable it to carry out its roles and responsibilities effectively and efficiently. 8.1 Develop integrity plan based on Revised Arusha Declaration and ensure compliance 8.2 Revise existing code of conduct and promote a culture of integrity. 8.3 Supervise & monitor the integrity plan. 8.4 Ensure predictable reward and punishment system and client satisfaction 9.1 Review/ analyse the flow of passenger 9.2 Enhance the facilitation of passenger clearance 9.3 Develop passenger clearance lanes at all major viii

17 Outcome 4 e- Customs: Customs Management Information System made Functional. clearance systems Strategy 10: Develop Management Information Database Strategy 11: Transform Customs Processes to E-Customs Customs, except dry port 9.4 Designate a separate Customs unit for courier cargo clearance 9.5 Establish the Advance Passengers Information System 10.1 Enhance dissemination of information throughout Customs 10.2 Prepare secure data warehouse for all Customs Data 10.3 Conduct research and quality enhancement of statistics 10.4 Carry out periodic checks and system audit 10.5 Integrate relevant Data among IRD/DRI and DMLI 11.1 Develop an e- Customs Master Plan (e-cmp) 11.2 Upgrade the operational effectiveness of Customs utilizing computerization 11.3 Enhance the capability of Customs in all areas of its operation utilizing ICT infrastructure 11.4 Establish a joint project team of relevant stakeholders to evaluate the cost and benefits of a single window concept and lead Single Window system implementation. G. Monitoring For CRMSAP strategies and actions, the DOC will institute the usage of the following monitoring tools: a. Framework monitoring indicators b. Monitoring plan c. Monitoring & inspection manual d. Software packages e. Baseline studies f. Meetings convened to monitor the Customs sector ix

18 Baseline surveys will be conducted to establish baseline indicators for monitoring and evaluation purpose. The Trimester and annual review of the CRMSAP will be done by DOC. Mid-term evaluation / assessment shall be done in the second half of The final evaluation / assessment of the CRMSAP will be done in the first half of the year x

19 Customs Reform & Modernization Strategies and Action Plan (CRMSAP) 1. Background 2013 to 2017 Nepal shares a border of more than 2,920 kilometers with Tibet Autonomous Region of China- and India. There are 31 main Customs offices and 143 sub-customs offices at various border-crossing points. Nepalese Customs collects Customs Duty, Value Added Tax, Excise and other taxes at the border points. It accounts for 40% of the total revenue and 47% of the total tax revenue. Customs duty alone contributes 20 % of the total tax revenue for the country. Customs is in the forefront in terms of revenue mobilization. This does not mean that the Customs role needs to be only confined to revenue collection. It is equally important to enhance trade facilitation by adopting international conventions, recommendations and best practices without compromising the national interest. Department of Customs (DOC) effort is directed towards making its administration more adept, service oriented and transparent as it needs to go on making timely improvements in its role, according to changes brought about in international trade, technological development, national needs, open and liberal economy, as well as to fulfill its important responsibility of improving government finances through internal resource mobilization for economic development. DOC has also initiated processes to accede to and execute the Revised Kyoto Convention and its implementing Guidelines, which are regarded as the blue print of Customs reform and modernization and also specify provisions for the application of risk management in Customs operations to carry out effective and efficient Customs control and to allow better use of available resources. Government of Nepal has initiated a number of reforms for the institutional strengthening of the Customs management in order to implement Nepal's international commitments and improve revenue mobilization. These initiatives include: Enactment and implementation of a new Customs Act 2007 and Customs Regulations Up-dating the Customs Reform and Modernization Action Plan

20 Establishment of Post Clearance Audit Office and strengthening the operation of Post Clearance Audit. Rollout of Automated Customs Clearance System (ASYCUDA) in 15 Customs Offices. Brokers Module implemented in 10 Customs Offices. Deployment of a Wide Area Network in 10 Customs Offices. IP Cameras installed in 4 main Customs Offices. Establishment of a Customs Reform and Modernization under the DOC. Establishment of Customs Laboratory in the Department. Establishment of a separate Information and Technology section under DoC. Establishment of an Intelligence in the Department and Risk Management Units in main Customs Offices. Cargo clearance using risk management (Selectivity Module) in 6 Customs Offices. Establishment of Inland Container Depots at Dryport at Sirsiya, Parsa, Bhairahawa, Biratnagar and Mechi. Trade Facilitation Committee at DoC. Establishment of Client Service Centers. Management and technical training programs conducted. Duties collected and receipt issued through bank at 5 Customs. DOC has also been reengineering its reform and modernization programs within the purview of the Customs Reform and Modernization Action Plan (2009/10 to 2012/13). The On going Action Plan is the third strategic document that aimed to transform Nepal Customs to world standards by using the international standards. The Customs Strategic Plans are based on the guidelines provided by the SAFE Framework of Standard the World Customs Organization (WCO) and other best practices. This Customs Reform and Modernization Strategies and Action Plan (CRMSAP) have been prepared for a period of four years covering 16 th July 2013 to 15 th July

21 1.1 Methodology The methodologies adopted for the preparation of the CRMSAP are review of literature, meeting with DOC staff and organization of consultation workshops with the stakeholders as below: i. Assessment of the On going CRM Action Plan. ii. Collect the activities recommended by the Balthali Workshop in Oct iii. A framework of the plan constructed in DOC by CRM with the help of IMF consultant. iv. Consultation with the Customs Field Offices at Hotel Himalaya seminar on in Dec, 2012 on the initial draft prepared. v. Presentation of the initial draft before the stakeholders in Trade Tower Workshop in Jan vi. Internal discussion with the Directors at DOC 4 times. vii. Version 2 of the CRMSAP prepared. viii. Workshop conducted with stakeholders from MOF/MOCS/Trade and Industry organizations in Nagarkot for the validation of the CRMSAP (March 15-16, 2013) ix. Final document of the CRMSAP prepared. List of participants is given in Annex Progress Analysis The following are the principal accomplishments under the Customs Reform and Modernization (CRM) Action Plans: Progress of the CRM Three Years Action Plan ( ) Draft prepared for the revision of the Customs Act in line with the provisions of WTO Valuation Agreement / Revised Kyoto Convention. Software development for valuation database to simplify valuation system. 3

22 International price index made available to different Customs every bimonthly. Interaction workshops for Customs Officers were organized three times annually. Formation of Trade Facilitation Committee at Customs Offices. Establishment of separate DOC web page. Circulars relating to Customs compiled and published. Publication of integrated Customs Tariff. Publication of introductory booklet of the DOC and Customs. Customs Manuals published and implemented. Mobile scanner installed at the dry-port. Mobilization of equipped flying squads. Arrangement of Customs clearance within two hours initiated. Citizen Charter prepared and implemented. A separate Code of Conduct enforced for Customs staff, including dress codes. Implementation of performance indicators system. Public hearing programs conducted every Monday in the DOC and every Sunday at the Customs Progress accomplished under CRM Three Years Action Plan ASYCUDA rolled out to Mechi, Tatopani, Krishnanagar, Gaur, Dryport and Nepalgunj Customs. Implementation of Broker Module and Risk Management (Selectivity Module) at TIA Customs Agreement signed for the construction of ICP in Biratnagar, Birgunj, Bhairahawa, and Nepalgunj Customs Buildings constructed at Jaleswore and Siraha Customs. Operation of Dry-port at Sirsiya, Parsa. Post Clearance Audit function started at Department of Customs. 4

23 2.1.3 Progress attained under the third CRM Four Years Action Plan ( ). In June 2007, WCO did send a diagnostic mission to Nepal Customs under the Columbus Program Phase I, as per request of Department of Customs to provide support for the Customs reform. The Mission recommended Customs reform in different areas. Following the recommendations, WCO again provided support of a mission under the Columbus Program Phase II to draft an Action Plan in August, A Four Years Strategic CRM Action Plan ( ), taking account the previous works done by the WCO, was developed by DOC with the technical assistance of IMF. The CRM was approved by the Ministry of Finance and was gradually implemented from July In an internal study of the assessment of the plan, it is found that the DOC has, fully or partially, implemented a considerable number of provisions of the current Action Plan ( ). Out of the planned 121 activities under 9 strategies, the DOC fully implemented 59 activities (49%), partially implemented 14 activities (12%) and implementation of 25 activities is inprogress. The final assessment of the plan will be conducted on completion of the on-going Strategic Action Plan after July, The following are the principal achievements: CRM section established at Department of Customs to oversee and drive the reform program. Establishment of a separate Information Technology at Department of Customs. Preparation for the Accession to the Revised Kyoto Convention. Removal of manuscript declaration and introduction of system generated SAD. Expansion of the Broker Module to 10 Customs. Expansion of ASYCUDA in 5 more Customs, namely Gaur, Jaleshwor, Janakpur, Sunsari and Sarlahi. 5

24 Establishment of Customs Intelligence Unit and Risk Management Committee in Department and Risk Management Units in main Customs. Implementation of risk based clearance (Selectivity Module) in 6 main Customs. Duties collected and receipt issued through bank at 5 main Customs. Harmonization of the working hours at border Customs. Establishment of web-based Valuation Database Management System for third country import of goods. Establishment of a separate Post Clearance Audit Office. Study on the restructuring of the Tariff and Advance Ruling. Timely release of data on Trade Statistics through Customs Reporting System. Conducted Organization & Management study. Study conducted of the existing 143 Sub-Customs. Integrated Check Posts under construction. Implementation of Performance Based Incentive System at field Customs. Ten Customs connected by the dedicated fiber links. Deployment of Internet Protocol Camera (IP Camera) Monitoring System at 4 Customs and Department of Customs. Establishment of Online Monitoring System of 10 Customs through Wide Area Network (WAN) linking Department of Customs. Study commenced for the development of e-customs Master Plan, Infrastructure Development Master Plan, HR Development Master Plan, and Integrated Laboratories. Developing client friendly Customs web-site providing FAQ and Integrated Tariff Search Engine. Formation of Trade Facilitation Committee with clear Terms of Reference. Establishment of a Client Service Center at Department and Biratnagar Customs. Development of 5 Modules to support ASYCUDA clearance namely, Agent's Module, Risk Management System, Valuation Database software, Data Warehouse and Passenger Clearance System. 6

25 3. Problems/Issues and Challenges 3.1 Problems/Issues The major problems/issues in the Customs administration in Nepal are: Simplification and harmonization of Customs procedures: Although Customs operations are governed by Customs Act, Customs Regulation, Fiscal Act and other provisions, the legislative provisions are not simple and comprehensive. Transparency and predictability are commonly raised issues in Customs administration. There are still gaps in legislation against the standards of Revised Kyoto Convention. There is a need of further simplification and harmonization of customs procedures and documents through simple and comprehensive Customs legislation to ensure transparency, predictability and compliance with the standards of the Revised Kyoto Convention. Long Customs Procedures towards Export and Import: As illustrated in 'Doing Business 2013 Nepal', the time taken for Customs clearance and technical control in terms of export is 4 days and in terms of import is 5 days; the transaction costs to complete such procedures is about US$ 300 taking into account of the involvement of Customs at Kolkata, India and Nepal Border. Reducing such procedural issues is necessary. DOC has to simplify customs procedures, complicated formats used resulting in high transaction costs. Issues of Database: DOC has implemented ASYCUDA++ developed by UNCTAD for Customs automation. However, there is still a lack of consolidated database at the headquarters. At present, the Customs Valuation database cannot be disseminated horizontally and vertically. Although transaction value method is the yardstick for Custom valuation, value information and database are the key factors to test its accuracy. Data can be generated within the Customs and also from outside sources such as international price ledgers, magazines etc. But in absence of adequate computerizations support, they cannot be used. 7

26 Inadequate Preparation for Customs Valuation: Customs valuation has remained always a subject of dispute between the government and trading community. The trading community complains that Customs Valuation is discretionary and not fair. The Customs official charge that the traders always try to undervalue the goods they import. The application of WTO Agreement on Customs Valuation can address the issue, provided the importers declare the price actually paid or payable for the goods imported. The Customs cannot use the discretionary power to determine the customs value. The system relies on post clearance audit system for customs control. There is a need for necessary preparations because the valuation procedures are highly technical and demand high skills. Because of the multi-sectoral roles of different agencies in this process such as banks, business houses etc., the Department of Customs has difficulty in determining transaction value because procedures for determining the value are not fully developed or understood by all the agencies. The infrastructures are not developed to cope up with the provisions of WTO Valuation Agreement. Ineffective Implementation of Post Clearance Audit (PCA): Post Clearance Audit is a process which enables customs officers to verify the accuracy of declarations through examination of the books, records, business system and all relevant commercial data held by persons/companies directly and indirectly involved in international trade. It is one of the customs control measures. It is conducted to verify the accuracy of the declared customs value. Thus, the effective implementation of PCA is necessary to secure the customs revenue and other taxes while facilitating the customs clearance at border. It is conducted, after customs clearance, to conform the accuracy of declared value and all provisions stipulated in the Customs Act. There is inadequate trained manpower for audit purpose in the DOC. The post clearance audit is the most effective tool to assess fraud and PCA, if developed properly; it can combat the risk of revenue leakages. Revenue Leakage: Revenue leakage has been frequently raised problem by different stakeholders specifically by the traders and the business communities. Full implementation of WTO valuation system, accurate classification and compliance with adequate legal, human and technical support will exert positive impact on trade and revenue. 8

27 Inadequate balance between trade facilitation and regulatory intervention: Trade facilitation is heavily reliant on the ability of Customs administration to raise the entryway in an effort to achieve an effective balance between trade facilitation and regulatory intervention. The concerns/problems are excessive government documentation requirements because of: Lack of automation and insignificant use of informationtechnology Lack of transparency; unclear and unspecified import and export requirements Inadequate customs procedures; particularly audit-based controls and risk-assessment techniques Lack of co-operation and modernization amongst customs and other government agencies, which impedes efforts to deal effectively with increased trade flows. Participation of stakeholders: It is realized that there was not adequate level of interaction among stakeholders during formulation of the CRM Action Plan. The plan was not well discussed among the central level management officials with the field offices of the Customs Department. This resulted in two issues: i. inadequate ownership in the planned activities by the respective sections of the Department, and ii. Weak linkages between the central level annual plan and the field level annual plan. Lack of business plan: Formulation of the Third CRM Action Plan was not followed by preparation of Business Plans. That constrained DOC approaching the Ministry of Finance and Development Partners for necessary budgetary support to implement the planned activities, although clear project documents were drawn up for each activity that required donor assistance, setting out where that assistance was needed. 9

28 3.2 Challenges The Department of Customs has always been committed to addressing the challenges of revenue collection which accounts for almost half of the government's total tax revenue. The main challenges for the Customs Management, over the coming four years, are to provide a prompt Customs service making it systematic, transparent and accountable. The main challenges are: I. Further simplification and harmonization of Customs procedures and documents through simple and comprehensive Customs legislation to ensure transparency, predictability and compliance with the standards of the Revised Kyoto Convention. II. III. IV. Creating the facility of electronic submission of Customs Declarations, ideally in an environment of one time submission. Non-intrusive equipment at border posts, effective border management and exchange of data, Institutionalizing Customs processes such as robust intelligence and profiling, deployment of security under unitary chain of command, post release review of Green Lane (no check) and Yellow Lane (document checks), consignments and a unified mechanism to control counterfeit goods and cross border smuggling thereby ensuring an effective control mechanism. Engaging in Memorandum of Understanding with the trading community, access to the information and trade statistics in time and at desired level to the trading community, and Interactive Web Portal for Customs Information to provide access to the information to stakeholders. V. Deploying EDI connectivity between Customs to share information, document harmonization across border and inter agencies coordination and joint checking for better border management. VI. Implementing the tariff classification effectively to facilitate the trading community to interpret and use the HS system of commodity classification and making the Customs administration professional to interpret the HS classification. 10

29 VII. VIII. IX. Affording adequate infrastructure to cater for the single window environment thereby enabling ideal cargo and passenger clearance processes. Applying integrity compliance measures throughout the Customs. Organizational restructuring of the Department and Customs and implementing appropriate structures to ensure these are compatible with the Customs Reform and Modernization Strategies and Action Plan. X. Developing a common platform for the information exchange among the stakeholders for the control of revenue leakage as well as ensuring trade facilitation. XI. XII. Installing the necessary technology facilities to enable the provision of access of all the information and statistics to the Customs offices and thereby enhancing the capacity to maintain intra Customs coordination and uniformity. Detecting the illegal movement of the Harmful and Hazardous Goods and protect the society and environment. 4. Vision Excellence in Customs services to support the economic and social prosperity of Nepal. 5. Mission 'We strive for Customs services to respect clients' time and value for money' building conducive environment for global economic activity to ensure growth, development, social safety and security. To attain this mission, the DOC will focus its attention on facilitating and promoting legitimate trade, affording leadership in protecting the health and welfare of society 11

30 through effective and seamless border management, and collecting appropriate and fair revenue,. 5.1 Values To accomplish the mission, DOC professional relationships with the commercial community, the public and other State organizations will be based on: Integrity: Nepal Customs officials would demonstrate high moral standards in all facets of their work. Impartiality: Nepal Customs operation will be guided by fairness and impartiality. Responsiveness: Nepal Customs will be responsive and transparent in facing and overcoming challenges resourcefully and with enthusiasm and passion in achieving the best possible results. Transparency: DOC will demonstrate transparency in its interactions and entire operation to the greatest extent possible. Mutual respect and courtesy: Nepal Customs working environment will be based on mutual respect and courtesy. Dedication and excellence: Nepal Customs staff will perform their job with dedication and excellence. 5.2 Guiding Principles To realise the mission, the DOC role will be guided by protecting citizens, the economy and the environment for the economic wellbeing of nation by trade facilitation and social safety and security. These guiding principles will be based on the following initiatives: Reducing Compliance Costs and Time: The DOC will promote simplicity, efficiency and predictability in Customs operation and will coordinate with concerned agencies in eliminating duplication and delays in securing permits, licenses and reporting systems and will work within the specified revenue structure of the country, thereby reducing administrative costs and time for the provision of services. Helping Fair Operation of the Market: DOC will promote a sound and fair environment towards an ethical code of conduct in Customs services, by promoting beneficial activities and discouraging unfair market competition, to ensure that those who should be paying revenues are complying. 12

31 Helping Export Promotion: Customs policies and actions will be directed towards creating conducive environment for export promotion. Establishing Conducive Environment for Investment: The DOC will facilitate the imports of raw materials and export of finished goods in such a way that it will facilitate and promote a favorable investment climate. Right Taxation for Sound Fiscal Framework: The DOC will be committed to revenue maximization through trade facilitation. Coordination: Coordination and collaboration with stakeholders for systems development will be a prime concern of DOC. 6. Objectives The objectives of the CRMSAP are to make conducive environment for economic prosperity in Nepal by improving trade facilitation, reducing transaction costs, and developing human resources for professional stewardship and facilitation in Customs, while at the same time improving revenue collection and border security. 6.1 Impact (Ultimate Objective) The ultimate objective of the CRMSAP is to establish "Responsive Customs administration established ' by initiating paperless Customs services and Web Based Clearance System. DOC will develop its technical and managerial capacity to attain the ultimate objective. 6.2 Outcomes (Immediate Objective) The CRMSAP will accomplish four outcomes to attain its ultimate objective: Outcome 1 - Economic Competitiveness and Prosperity: Incorporated and assimilated all of the efforts of Customs reform and modernization in a framework to support trade facilitation. The DOC will re-assess the legislative and administrative approach to the regulation of international trade. The requirement of excessive government documentation will be reduced with the introduction of automation and the significant use of information-technology. The import and export requirements will be made more transparent, clear and specific. The DOC 13

32 will study the international conventions and use relevant international standards as the basis for import and export, in particular: RKC, AEO, WCO/WTO conventions /measures on trade facilitation, periodic review of the formalities and documentation requirements for import and export. Studies such as advanced rulings and tariff restructuring will be carried out to ensure that the Customs Tariff is investment friendly and assists the legitimization of commercial enterprises. The DOC will also establish Policy Review Unit under the CRM section, staffed with suitably qualified personnel. The planning and management capacity of the Customs team will be strengthened. Co-operation and modernization practices amongst Customs and other government agencies will be enhanced to overcome impediments that could impact negatively on increased trade flows. Outcome 2 - Enhanced enforcement, compliance and high revenue yield: Improved adoption of risk-management based regulatory compliance: Quality of the Customs procedures, particularly audit-based controls and riskassessment techniques will be improved. Reviews will be carried out to determine the minimum resources necessary to increase the number of border patrols to an effective level and to raise revenues from the Customs services including adoption of measures towards improving the coordination among border agencies, local agencies, local security wings and Regional Revenue Investigation units. The DOC will make sure that all of the other agencies are aware of the Customs Risk Based Approach to the clearance of imports and exports in line with international best Customs practices. Additional measures will be taken to increase searches and surprise visits of warehouses suspected of holding illegally imported goods. The DOC will explore the need to form a separate Customs Security Force under the command of the Customs Chief, including enhancement of the effectiveness of Intelligence/ Risk management/ System Audit and Audit Procedures. Other steps will include strengthening the border Customs clearance monitoring system; establish a secure hotline system and a flying squad cell at central level as well as organization of cross border meetings with Customs counterparts. 14

33 Additional programs such as establishment of a mechanism to more effectively control illicit drugs, fake currencies, pirated and counterfeit goods; Customs as the Frontier Border Service, and establish post to check high risk cargo will be completed. Other initiatives to attain the objectives will include: identification of sensitive areas of smuggling and formation of a High Joint Action Unit; arrangement to move cargo in containerized containers only; start of the process to amend the Act to effect this provision; formation of an Armed Police Force/Security Force under Department of Customs command; amendment of legislation and operating joint inspections to check false VAT invoices to transport goods; holding meetings of cross Border Agencies monthly to exchange information on security threats, organized crime, illegal activities, cross border fiscal fraud, smuggling of drugs, dangerous, harmful and prohibited goods, money laundering, weapons and trade in counterfeit goods; A further initiative will be the development of an informant program with appropriate policy, operating procedures, including security aspects, recruitment program and a reward regime. The DOC will take up important steps to collect the correct revenues to be paid to the Government such as interface of the valuation database with the cargo processing system, carry out risk based checks of declared values on import declarations, providing valuation officers access to import database and relevant hard copy reports, establishing and maintaining a central valuation database in DOC and access at regional levels, including preparation of an international price index, reviewing the manuals for Valuation & PCA to ensure that they reflect best practice, implementing the provision of purchasing undervalued goods effectively, amending legislations to comply with contemporary international trade practices on valuation and PCA, improving the revenue security of DOC by strengthening the centralized PCA Office, establishing regional PCA Offices at main Customs Offices, liaising with Ministry of Commerce and Supplies and introduce Importers/Exporters Code, Set up mechanism to update traders profiles automatically and improving the capacity of Customs Agents and ensure transparent procedures. 15

34 Outcome 3 - Organizational development and capacity building: Strengthened Planning and Management Capacity of the Customs: The DOC will develop an annual action plan and district office annual work plans to transform the CRMSAP into action. Organisational structure will be revisited with necessary leadership, management and technical capacity building of the Customs administration team. Human Resources Development Plan will be prepared with provisions of required physical facilities and made available capital funds to support carrying out the roles and responsibilities of the staff efficiently and effectively. The DOC will review and prepare appropriate and qualified legal framework to ease application of the administration and legal process. The DOC will adopt Zero Tolerance to corruption and will establish a separate unit at Customs to build integrity profiles and investigation of corruption, as well as make the exiting Code of Conduct compatible with the Civil Servant Code of Conduct, It will also develop a separate Personnel Information System and update the records, and will carry out observation and monitoring of Customs offices regarding integrity work division, terms of reference, record keeping and compliance of other legislative provisions for the modernisation of Customs management, administration and infrastructure. Outcome 4 e-customs: Customs Management Information System made Functional: The DOC will develop an e-master plan for Customs and disseminate information throughout the Customs administration. It will establish the principles of Risk Management across the Customs organization with particular emphasis on cargo clearance. Capacity of the Customs administration will be built in all areas of its operation utilizing ICT infrastructure. A joint project team of relevant stakeholders will be established to evaluate the cost and benefits of a single window concept and leading the Single Window system implementation. 16

35 6.3 Strategies and Major Activities The Strategies and Action Strategies needed to achieve the above aims and objectives are: Strategy 1: Facilitate Legitimate Trade and Industry: The DOC will process all the steps to accede Nepal to Revised Kyoto Convention. Number of Documents will be reduced to the level of South Asian best performer. The main activities are: 1.1 Study the international convention and use relevant international standards and contemporary best practices as the basis for import and export. 1.2 Notify compliance of WTO Valuation Agreement. 1.3 Review the formalities and documentation requirements for import and export periodically. 1.4 Review the Customs Tariff to make it investment friendly and assist legitimate commercial/industrial enterprises 1.5 Establish Policy Review Unit with suitably qualified personnel within DOC structure. Strategy 2: Promote communication and cooperation (with stakeholders including Customs to Government, Customs to Customs and Customs to Business): Under this strategy, the DOC will make standard operating procedure for Customs processes, interactive Web Portal will be operational for stakeholders with qualified staff, client Service Desk at DOC and main 10 Customs Offices will be functional and interactions will be organized with stakeholders through Trade Facilitation Committee bi-monthly. Main activities are: 2.1 Promote and improve co-operation with Customs stakeholders. 2.2 Facilitate/provide support to expand the performance of Customs Agents/stakeholders in transacting Customs business. 2.3 Strengthen relationships with external counterparts and organizations. 2.4 Develop Broker Management System 17

36 2.5 Enter into Customs Cooperation Agreement at least with two main trading partners. 2.6 Enter into MOU with national trade and industry organizations. 2.7 Organise regular interaction with the stakeholders. 2.8 Establish Grievance Handling Committee. 2.9 Establish and operate effective Client Service Desks Develop social corporate responsibility programs of Customs at border areas. Strategy 3: Protect Society and environment: Under this strategy, the main Customs will be equipped with non-intrusive equipment and modernize Lab of DOC. Customs command will be strengthened on controlling the Border smuggling including increase in number and extent of illegal detections. The main activities are: 3.1 Establish Customs as the Frontier Border Service. 3.2 Provide legislative provisions that will enforce Customs capacity to control border smuggling and illegal trade including environment protection in the areas of CITES and ODS. 3.3 Collaborate/coordinate with border agencies, local agencies, local security wings & Regional Revenue Investigation units. 3.4 Exchange information among stakeholders to ensure that all of the other agencies are aware of Customs Risk Based Approach to the clearance of imports and exports in line with international best Customs practices. 3.5 Review the need to form a separate Customs Security force under the Customs Chief command. 3.6 Develop profiles of sensitive Areas of Smuggling and form High Joint Action Unit. 3.7 Establish a flying squad cell at central level. 3.8 Establish a mechanism to effectively control the illicit drugs, fake currencies, pirated and counterfeit goods. 3.9 Increase searches & surprise visits of bonded and non bonded warehouses suspected of holding illegally imported goods Enhance capacity of Customs Laboratory to identify illegal movement of prohibited substances and counterfeit goods. 18

37 Strategy 4: Ensure Compliance with the Law: The DOC will enhance efficiency and effectiveness of Customs management system and encourage voluntary compliance by providing web based declaration submission to the clients including access to all information on Customs procedures. E- Customs will be functional in Customs administration The main activities are: 4.1 Raise awareness of all other agencies to the Customs Risk Based Approach for clearance of imports and exports in line with international Customs best practices. 4.2 Strengthen the border Customs clearance monitoring system. 4.3 Amend legislation and operate joint inspections to check false VAT invoices to transport goods. 4.4 Arrange to move cargo in containerized containers with Customs seal system. 4.5 Introduce system to operate Commercial import/ export under proper banking channel. 4.6 Strengthen Risk Management. 4.7 Establish the principles of Risk Management across the Customs organization with particular emphasis on cargo clearance. Strategy 5: Collect appropriate and fair Revenue: Under this strategy, the DOC will developed mechanism for easy access to online valuation database for Customs offices, strengthen the Central Monitoring for regular and on-line monitoring of main Customs Offices. It will also execute monthly grading of Customs Offices and make the necessary amendments in the Customs law to ensure confidentiality with regard to value declarations and residual powers in the Department for valuation rulings. Human resource development plan will be initiated including preparation of manuals for internal audit, and suitable penalty provisions for valuation non compliers. The main activities are: 5.1 Make provision for Law compliance strategy 5.2 Improve Compliance environment for Customs Valuation 5.3 Interface valuation database module with the cargo clearance system. 19

38 5.4 Carry out risk based checks of declared values on import declarations in DOC. 5.5 Provide access to Valuation officers to import database and relevant reports. 5.6 Establish and maintain a central valuation database in DOC and provide access to Customs and designated other offices. 5.7 Review the manuals for Valuation & PCA to ensure that they reflect best practice. 5.8 Make the necessary legislative amendments to ensure that all provisions comply with contemporary international best practices on valuation and PCA. 5.9 Strengthen the PCA Office 5.10 Establish PCA units at major Customs offices under PCA office Improve the HS classification application. Strategy 6: Modernise and Enhance Customs Management/ : The DOC structures will be revisited and restructured. Organisation will be functional with human resource planning and management policy in place. The main activities are: 6.1 Restructure the Customs Organization and Management System. 6.2 Upgrade and automate the inventory, record keeping and archiving systems 6.3 Enhance leadership, management and professional capacity 6.4 Approve and implement the Human Resources Master Plan (HRMP). 6.5 Establish and develop the core technical capacity of Customs Strategy 7: Develop Infrastructure and Physical Facilities: Under this strategy the DOC will design Physical infrastructure improvement plan to ensure functioning of modernised Customs administration. The main activities are: 20

39 7.1 Approve and implement the Physical Infrastructure Improvement Master Plan (PIIMP). 7.2 Design uniform layout for Customs with the emphasis on construction of ICP and ICD. 7.3 Acquisition of land in various Customs offices. 7.4 Construct the Customs buildings to improve working environment. 7.5 Establish Customs Laboratory Network 7.6 Maintain optimal usage of modern technology-led physical facilities for ensuring automated Customs systems. 7.7 Renovate the infrastructures of Northern sides Customs and other defined sub Customs. 7.8 Modernize Laboratory and develop present laboratory as a Central Customs Laboratory. 7.9 Arrange appropriate provision for adequate capital funds to DoC to enable it to carry out its roles and responsibilities effectively and efficiently. Strategy 8: Promote a Culture of Integrity: There is a need to assess the integrity to provide private sectors an easy and simple Customs process for trade facilitation. It will help expedite Customs processing and clearance. The DOC will developed integrity action plan and implement it, maintain individual staff profile and provide performance based incentives to the Customs officials. The main activities are: 8.1 Develop integrity plan based on Revised Arusha Declaration and ensure compliance. 8.2 Revise existing code of conduct and promote a culture of integrity. 8.3 Supervise & monitor the integrity plan. 8.4 Ensure predictable reward and punishment system and client satisfaction. 21