A lesson for importers – how to save money through becoming an AEO

July 23, 2015

A lesson for importers – how to save money through becoming an AEO

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Question: How can Customs authorities and importers work together so that tax revenues increase while importers save money?

It sounds like a contradiction in terms. How can importers hope to save money when the more products they import the more tax they pay? Yet it is happening in East Africa where Customs reforms, facilitated by TradeMark East Africa (TMEA), are not only encouraging importers to be tax compliant, but are also helping them to save money on transport and related costs.

Robert Bapfakurera, founder and Managing Director of Roba General Merchants in Kigali Rwanda, is a good example. His company imports fast moving products such as rice, cooking oil, sugar and soap, from countries as close as Uganda and as far away as Pakistan and Indonesia.
For a landlocked nation like Rwanda, importing products from overseas used to be a stop-go process, a minefield of bureaucracy combined with a plethora of barriers that included weighbridges, roadblocks and unofficial payments at borders. Today, thanks to expertise and training provided by Rwanda Revenue Authority (RRA) in collaboration with TMEA, the journey is less stressful, with a reduction in transit time of an incredible two thirds.

For Bapfakurera the change began in 2012 when he was chosen by the RRA to become one of only three Authorised Economic Operators in Rwanda, referred to as ‘AEOs’. AEOs, are accredited importers and exporters benefiting from preferential treatment and incentives because they have demonstrated a history of compliance.

The new status gives Roba General Merchants the right to move cargo without being stopped and the authority to clear goods online before they arrive at the Rwanda border, or to keep them in a bonded warehouse on arrival.

“I think I was chosen because of compliance,”
says Bapfakurera. “My company has been doing business in Rwanda for over 15 years. We have a good relationship with Customs and we pay our taxes. In fact in 2011 we were named among the best taxpayers in Rwanda.”
Bapfakurera claims that it is easier to do business as an AEO. This is because his decision to pay import tax can be made at any time before the goods reach the Rwanda border. So if he has a large order for cooking oil from a customer in Uganda he can pay his tax online at any time before delivery and have the product distributed during the journey. This saves time and transport costs and gives him a competitive advantage in that he can have many distribution points along the way.

“In that way I can take advantage of the market between the port of entry and our border,” he claims. “And even in Kigali I can deliver straight to the market.”

A win-win situation

William Musoni, Deputy Commissioner Customs in Kigali explained that first and foremost the AEO project is aimed at promoting tax compliance.

“We have an understanding with the business community,” he says. “We sit with them, we talk with them, we agree, we have a common understanding and we are facilitating the business community by listening to what they want us to provide.”

In return, he says, Customs requires them to have processes and procedures in place before being accredited as an AEO.

How then is someone selected to be an AEO? William Musoni explains that Customs authorities first met at regional level to agree harmonised criteria. Secondly, importers were selected from what they call their ‘gold card scheme’ – an already established group of 120 trusted low risk importers. Thirdly, the selected companies are vetted to ensure they are compliant throughout East Africa. Only then are they accredited.

In the end it’s a win-win situation as Musoni explains: “The AEO will benefit because the checking is minimised and the turnaround will be much quicker. And the more they import the more duties they pay and the more goods are cleared.”
Bapfakurera agrees. “The system is quicker, cheaper and convenient,” he declares. Customs don’t normally inspect my goods because they trust me. So I save time and transport costs.”

The AEO system in Rwanda, and in East Africa as a whole, is complemented by several other Customs reforms: the Single Customs Territory, whereby goods and taxes are cleared and paid at the port of entry (SCT); the Electronic Single Window, which allows all stages of clearance to be done online; and the Electronic Cargo Tracking system, which monitors cargo throughout its journey.

While Bapfakurera has the choice to pay duty at the point of entry he prefers the AEO system because it makes financial sense. “The difference between the SCT and the AEO is that with the SCT I have to pay tax at the port. As an AEO I pay tax when the goods are closer to my country so I hold onto my money for longer.” This means that his trucks can make more journeys per month and he can import more goods.

“By saving money on transport costs,” adds Bapfakurera, “you can translate it to a lower price for customers, say 200 to 300 Francs on a product.”

So what, in his opinion, is the lesson for importers? “People should be encouraged to aim to be AEOs,” he concludes. “Honesty pays. Proper procedures with customers mean good relationships, which also builds up the system.”

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