© 2018 - International Centre for Investigative Reporting
How Nigeria loses billions to waivers on Samsung, LG imports
Nigeria has suffered revenue losses in hundreds of billions of Naira to the corrupt practices of government officials and importers of Samsung, LG and other electronics products into the country in recent years, a special OrderPaperNG investigation has revealed.
In cases investigated by this medium, no less than N24 billion worth of revenue has been lost to a scheme of duty waivers and concessions obtained through fraudulent basis. The cases involve the importation of electronic devices like televisions, fridges and freezers, among other products manufactured by Samsung and LG, both widely patronised by Nigerians.
Rhetoric on anti-corruption?
The government’s refrain is that revenue from the country’s mainstay — crude oil— is unstable and dwindling, highlighting the need for diversification of the economy. The current administration has repeatedly spoken about blocking revenue leakages and ramping up earnings from non-oil sectors such as taxation and Customs duties.
According to the Nigeria Customs Service, NCS, there was a record revenue generation of N1 trillion in 2017 alone, beating the organisation’s target of N770 billion set for the year. Announcing this feat in December 2017, the NCS Public Relations Officer, Joseph Attah, was full of praise for the Comptroller-General of Customs, retired Col. Hameed Ali, whose anti-corruption credentials reportedly qualified him for the job.
However, a closer examination of NCS revenue streams reveals that corruption still reigns in the nation’s ports as the government has lost several billion Naira to importers who have taken advantage of controversial waiver policies and other fiscal incentives of government. One of these is the import duty waiver for Completely Knocked Down (CKD) and Semi Knocked Down (SKD) goods, which involves giving tax concessions to importers who are willing to import products in parts to be assembled locally in Nigeria, with the aim of creating jobs and promoting the transfer of technology. Under this policy, importers are given a tax waiver by the Ministry of Finance, to import CKDs/SKDs and, instead of paying between 20-35 percent duty they pay 5 percent only, in the confidence that the importers will build assembly plants in Nigeria and employ Nigerians. The federal government justifies these waivers based on the provisions of the Customs and Excise Tariff Act and the Finance Miscellaneous Act 39 of 1990, among other legal and administrative instruments administered mainly by the Ministry of Finance and implemented by the Customs Service.
Serial defaulters and the import scam…
However, according to documents exclusively obtained by OrderPaperNG and following a detailed investigation on imported electronic brands like Samsung and LG, the CKD/SKD policy has been turned into a bazaar of corruption involving the importers, the ministry of finance, officials of the Customs Service and other actors in the nation’s ports and importation matrix.
These documents revealed that between 2010 and 2017, Nigeria lost hundreds of billions of Naira in the corrupt scheme. Between some four importers -Dee Kay & Sons (Nigeria) Limited, Fouani (Nigeria) Limited, Sims (Nigeria) Limited and Somotex (Nigeria) Limited- who bring in Samsung, LG and other global electronic products, the country has been short-changed by more than N24 billion in the period under review. These importers have been importing Fully Built Units (FBUs) and claiming the incentives for CKDs/SKDs in a practice referred to as ‘wrong classification’ which is a clear breach of the law and regulations for importation. In simple terms, the nature of the goods indicated in the manifest before shipment is different from what arrives in the country, eventually.
Also, many of the importers do not have assembly plants in the country, a requirement for granting the waivers in the first place. Ironically, the same Customs agency that identifies the imports as wrong classification upon arrival, allow these goods to be cleared in cohorts with a powerful cabal in the importation business in the country.
According to official documents, Somotex short-changed the federal government through this dubious practice to the tune of about N1.255 billion between 2012 and 2015 and consisting of about 127 product importations through the Apapa and Tin Can Island ports. On 06/01/2014, for instance, the firm imported twelve 40FT containers of television sets as CKDs with Customs Reference C674 through the Apapa Port. It paid a 5% duty of N17,757,486.00 instead of 20% for the consignment valued at N146.12million. One of the documents seen by OrderPaperNG, however, revealed that the imports were not CKDs as claimed, meaning that the company short-changed government to the tune of about N24.6million on that particular transaction. Another importation of television sets on the same date with Customs Ref. no C661 led to a loss of N24,977,522 for the government through the same false waiver claim. On the 9th of September 2013, the same company imported television sets as CKDs and paid 5 percent duty instead of 20 percent thereby leading to a revenue loss of N3,614,809.27, since it was a case of wrong classification as well.
Another set of documents seen by OrderPaperNG showed that on the 24th of May 2013, Fouani imported fully-built Chest Freezers through the Apapa port and, instead of paying the required 35 percent duty of N63,136,239, the company paid only 5 percent which came up to N17,566,512. This particular case of wrong classification with ref. no C31035 cost the government N45,569,727 in revenue loss. On the 26th of May 2014, another importation by the same company with reference number C30451 toed the same line leading to the loss of N43,200,706 in monetary revenue to government. In this tranche of documents involving Fouani, about 294 CKD/SKD importations were made under wrong classification leading to a cumulative loss of about N21.18billion between 2013 and 2018.
Another company, Dee Kay Nigeria Limited, in over 153 importations under wrong classification between 2015 and 2018, also short-changed government to the tune of over N851million by importing fully-built fridges, freezers and other electronic products by claiming the waiver for CKDs.
The case of Sims Nigeria Limited involved over 157 separate importations under wrong classification causing a loss in revenue of over N1billion within the period between 2010 and 2015.
OrderPaperNG reached out to the companies involved and while most have avoided speaking or responding to emails, Somotex Nigeria Limited, in an email to our reporter, declined to address the questions posed and instead threatened reprisals should the story be published.
Ignored Customs circular and the assembly plant hoax
It is questionable that officials of the Customs Service continue to allow free passage for goods that have been found to be imported under wrong classification. And this is in spite of a Nigeria Customs Service Circular issued in 2010 which ordered all units at the ports to charge full duty for any import that fails to meet the CKD/SKD standard, regardless of waivers from the Ministry of Finance.
Even though the current Comptroller-General, Ali Hameed, has been widely praised for the increase in revenue generation under his watch, the abuse of the CKD/SKD import waiver has continued under his watch in spite of his anti-corruption credentials.
OrderPaperNGcontacted the Custom’s Public Relations Officer (PRO), Mr Joseph Attah, who absolved the Service from any wrongdoing, saying the waivers were given by the ministry of finance and that it is not the remit of the NCS to question the basis for the concession nor ascertain whether the importers actually operate assembly plants or not. According to him, “as far as somebody is given a genuine waiver, our duty is to implement the policy and not to question why the person was given or what qualifies the person to be given waiver. It is not our duty to check whether that person has plant or not. Customs do not give concessions, so you can go and verify, Customs will treat you according to what has been granted you.”
Mr. Attah however confirmed that wrong classification is an offence and that the NCS Circular issued in 2010 remains valid. He explained: “The 2010 circular is still valid and wrong classification is an offence but what concerns us is that at the point of importation, we do our examination and mind you our examination at the ports is always a joint one (with other government agencies) and when wrong classification is detected, the container will not be released, then it will be reclassified so that appropriate duty can be paid.” The Customs spokesman, however, said any official of the Service found culpable in the scam would be made to face the wrath of the law.
“I’m not aware wrong classification was going on. However, in the process some of these things are done by human beings, mind you the beneficiaries of these concessions are human beings and the implementers of these concessions are also human beings. Therefore, there are possibilities of such acts, but they have to be investigated and any officer found culpable seeing something classified as CKD would release products of full flesh would be dealt with,” he emphasized.
OrderPaperNG also contacted the department of press in the ministry of finance for this story but inquiries were referred to the minister, Mrs. Kemi Adeosun, whose office asked that a letter be written to trigger an internal investigation into the matter.
The fact that several importers abusing the CKD/SKD waiver do not have assembly plants for their goods has been confirmed by Sen. Hope Uzodinma, who led the Senate investigation into loss of revenue at the ports.
In a briefing on the findings of his committee earlier this year, Sen. Uzodinma was assertive that the companies have been involved in the importation scam under the guise of CKD/SKDs. According to him, “Foreigners are here, pretending to be manufacturing different products in Nigeria, pretending to be importing raw materials or Completely Knocked Down (CKD) but in the real sense, they have no assembly plant. You can see how a globally-acclaimed company like Samsung is importing into the country and pretending to be manufacturing or assembling their products in Nigeria. Meanwhile, it has been confirmed now that they have no assembly plant in Nigeria.” He had further cited the committee’s oversight visit to Somotex in Lagos state and said: “We visited the site, we saw no assembly plant. Samsung has confirmed that Somotex is one of their distributors whom they supply finished products. The question is, if they supply finished products to Somotex and Somotex is their distributor, how come Somotex is importing CKD and claims to be assembling it in Nigeria?”
Unending Senate investigation and continuing infractions
Meanwhile, OrderPaperNG reached out to the Senator to find out why a report has not been submitted to the Senate after several months of work but his phone lines were switched off and he did not respond to text messages.
However, the Vice Chairman of the Committee, Senator Samuel Anyanwu, responded to inquiry, saying he had no idea on the matter. “I am the Vice Chairman but I don’t know what is happening there. I have not been there for a while,” he said.
Recall that in October 2017, the Senate Joint Committee on Customs, Excise and Tariff and Marine Transport disclosed that the defaulting firms had started making refunds to the federal government to the tune of about N140 billion. The investigation is yet to be concluded by the Senate even as the importers continue to fleece the Nigerian government in taxes and duties, as document in the possession of OrderPaperNG revealed.