1

Project

Prospects of Georgiarsquos Integration

In the EU Customs Union

Overview of Georgian

Customs System

Bondo Bolkvadze

Senior Consultant

Policy and Management Consulting Group - PMCG

Tbilisi Georgia

June- 2010

Organization Policy and Management Consulting Group -PMCG

Funder German Marshall Fund of the United States

Funding was provided by The Black Sea Trust a project of German Marshall

Fund of United States Opinions expressed in the written or electronic

publications do not necessarily represent those of the Black Sea Trust the

German Marshall Fund or its partners

2

Table of Contents

1 General information 3

2 Organization and structure of Georgian customs 5

3 Human resource management 7

4 Customs legislation 8

5 Post-clearance Customs Control 10

6 Risk management 11

7 Customs valuation 12

8 Import-export duties and revenue collection 13

9 Customs disputes resolution 15

10 Authorized economic operators 17

11 IT implementation 17

12 Intellectual property rights 18

13 Trade across border 19

3

Georgia

1 General information

Independence from the Soviet Union declared - April 9 1991 Capital (largest city) - Tbilisi 41deg43primeN 44deg47primeE Official language(s) - Georgian Ethnic groups - 838 Georgian 65 Azeri 57 Armenian 15 Russian

25 other [3]

2

Table of Contents

1 General information 3

2 Organization and structure of Georgian customs 5

3 Human resource management 7

4 Customs legislation 8

5 Post-clearance Customs Control 10

6 Risk management 11

7 Customs valuation 12

8 Import-export duties and revenue collection 13

9 Customs disputes resolution 15

10 Authorized economic operators 17

11 IT implementation 17

12 Intellectual property rights 18

13 Trade across border 19

3

Georgia

1 General information

Independence from the Soviet Union declared - April 9 1991 Capital (largest city) - Tbilisi 41deg43primeN 44deg47primeE Official language(s) - Georgian Ethnic groups - 838 Georgian 65 Azeri 57 Armenian 15 Russian

25 other [3]

3

Georgia

1 General information

Independence from the Soviet Union declared - April 9 1991 Capital (largest city) - Tbilisi 41deg43primeN 44deg47primeE Official language(s) - Georgian Ethnic groups - 838 Georgian 65 Azeri 57 Armenian 15 Russian

25 other [3]

4

Government - Unitary semi-presidentialrepublic

Area (Total) - 69700 km2 (120th) Population 2009 estimate - 4385400(Statistics Georgia) (122nd)

Density - 611km2 (134th) GDP (PPP) 2009 estimate - $20862 billion per capita - $4757 GDP (Nominal) 2009 estimate - $10737 billion per capita - $2448 HDI (Human Development Index 2007) - 0778 (medium) (89th)

Currency ndash Lari (ლ) (GEL)

Time Zone - UTC (UTC+4) Member of WTO ndash since June 14 2000 Member of WCO ndash since October 29 1993 Exports - $ 1766 billion (2009 est) Main exported product - scrap metal wine mineral water fruits and nuts Main partners ndash Turkey 176 Azerbaijan 137 Ukraine 9 Canada 88 Armenia 82 Bulgaria 72 USA 68 Import - $ 4477 billion (2009 est) Main imported product ndash fuels vehicles machinery and parts foods pharmaceuticals Main partners ndash Turkey 149 Ukraine 104 Azerbaijan 96 Germany 79 Russia 68 USA 57 China 47 UAE 44

Abbreviations

MoF ndash Ministry of Finance RS ndash Revenue Service MoIF ndash Ministry of Internal Affairs LEPL ndash Legal Entity of Public Low SAD ndash Single Administrative Document EU ndash European Union EC ndash European Commission WTO ndash World Trade Organization WCO ndash World Customs Organization UNCTAD ndash United Nations Conference on Trade and Development CIS ndash Commonwealth of Independent States FTA ndash Free Trade Agreement IT ndash Information Technology IPR ndash Intellectual Property Rights

5

2 Organization and structure of Georgian customs

Georgian customs was merged with tax administration creating ―Revenue Service as main revenue collecting agency in 2007 However as in most other countries with a similar organizational framework ―integration is limited to human resources management and a few other headquarters functions Revenue Service of Georgia has a status of Legal entity of public law under supervision of MoF The ―Law on Revenue Service defines servicersquos functions and objectives specific functions of each department and unit are detailed in ―internal provisions decree of Revenue Service Central headquarters Supervisory body of all customs agencies There are

nine departments that define customs strategy methodology action plan Solve customs disputes elaborate legislation monitor law enforcement process etc Regional Centers Customs operations are handled by seven regional

centers Regional centers plan and control activities of Customs checkpoints and clearance offices Border Customs checkpoints Border checkpoints are operating every day

24 hours However they have anti-smuggling functions but Georgian Customs is mainly oriented on fiscal targets Resources are used on search and inspections of individuals and means of transport as well as electronic and documentary registration of shipments for further customs clearance needs Because of lack of adequate infrastructure at the border crossing points imported goods are generally transferred to private owned ICDs (abbreviation) for customs clearance Border customs checkpoints provide only registration of imported goods but there is no room for logistics and warehousing which is so crucial for customs clearance Even Poti sea port facilities donrsquot allow going through all customs procedures in docks In total there are sixteen border customs checkpoints though only eleven of them are fully operational without any restriction on movement of cargo or passengers Customs Clearance offices There are ten customs clearance offices under

the regional centers that clear all cargo in Georgia except minor imports by passenger who are served at border checkpoints Customs clearance offices work eight hours a day except weekends Overtime service is available due to payment of additional overtime fee Staff is divided according to operational lines 1) unit that serves only documentary control of goods 2) unit that serves both documentary and physical inspections of shipment and 3) unit that serve to specific regimes other than import

6

Revenue service

Central headquarters Regional centers

Administrative department

32

Apparatus of head of

revenue service

6

Legal department

11

Disputes department

30

Department of

methodology

35

Customs control

department

65

Internal audit

15

Revenue collection

department

38

Bureau of international

relations

7

Tbilisi (detailed structure -

see below)

Rustavi

Telavi

Gori

Kutaisi

Poti

Batumi

Akhaltsikhe

Guria

Abkhazia

7

3 Human resource management

Reforms Customs staff reform was the first important step taken by Georgian Government for modernization of the system At present over nine hundred customs officers work in Georgian Customs offices Since 2005 more than 95 of the staff has been changed Reforms intended to remove all corrupt personal and replace them with young motivated staff Administration has elaborated standard rules according to which new recruits have to go through two month training and four-month internship program before appointed Replacement process was very intensive and it went by eliminating any links between new and old staff which resulted in two outcomes 1) New team was prevented to inheriting a total corruption from their predecessors 2) they lack practical experience and skills Nowadays itrsquos difficult to find a customs officer with more than two or three years experience Anyway such radical approach to staff reform is approved by Georgian customs administration as they got rid of corruption (level of corruption was dramatically reduced in last five years) but it brought to another problem that seriously damages business climate and trade facilitation ndash Lack of professionalism and skill of Customs officials Training Training capacity isnrsquot highly developed though RS made significant progress in this direction last year Nowadays customs officers are trained mainly in the Academy of MoIF while the Financial Academy of MoF is newly established and just began working on the strategy and action plans 189 customs officers were trained in various professional courses during 2009 Training materials are developed by trainers who have biggest positive experience of working in the Georgian customs system though they arenrsquot certified trainers Weakness Very high turnover of customs staff is still evident 167 new

recruits were trained only on 2009 Customs administration doesnrsquot have any effective program for retention motivation and long term development of personal

Tbilisi

Regional Center

Administrat

ion 38

Legal unit 24

IT and

analytical

unit 7

Service unit 154

Control

unit 148

Unit for

special

measures

Customs

clearance

and control

unit

121

Customs

checkpoint

ldquoTbilisi

Airportrdquo

39

Customs

checkpoint

ldquoKazbegirdquo 42

8

The roles and responsibilities of each function and of employees working at all levels within each function arenrsquot clearly defined Job descriptions highlighting the minimum levels of knowledge skills and aptitude required for competent performance is not in place Code of conduct for customs officers isnrsquot elaborated Only a few provisions can be found in various regulations about customs officersrsquo behavior Anyway customs became much more user-friendly and consumer oriented during recent 2-3 years but there is a lot more to be done

4 Customs legislation

Structure and hierarchy Georgian Customs legislation consists of International Conventions international bilateral and multilateral agreements Customs code of Georgia and Secondary customs legislation International Conventions and agreements take priority over national legislation where it contradicts They are signed by Government of Georgia and ratified by Parliament Customs code is the main document laying down general provisions and policies of customs administration Present Georgian Customs code was elaborated on bases of EU customs code in 2006 and entered into force from January 1 2007 Customs code is approved by Parliament of Georgia and it takes priority over secondary customs legislation Secondary customs legislation generally provides implementing provisions for Customs code Secondary legislation is approved by decrees of President Government of Georgia and Minister of Finance

List of international conventions in customs area that Georgia has signed

1 International convention on harmonized commodity description and coding

system ndash since 2009

2 Convention on Containers ndash since 1999

3 International convention on mutual administrative assistance for the

prevention investigation and repression of customs offences (Nairobi

convention) ndash since 2009

4 International convention on harmonization of frontier controls of goods -

since 1999

5 Customs convention on international transport of goods under cover of

TIR carnets (TIR convention) ndash since 1994

6 Convention on the contract for the international carriage of goods by road

(CMR convention) ndash since 1999

9

Overview of Georgian customs legislation Customs legislation was elaborated according to EU model in 2006 However some gaps and differences between Georgian and EU legislation are evident Customs regimes ndash Seven customs regimes are in place Release for free circulation Export Transit Temporary import Customs warehousing Inward processing relief Outward processing relief Processing under customs control doesnrsquot exist as a separate regime but its provisions were merged with Inward processing relief creating one regime Besides there are approved treatments like re-export abandonment of cargo with transfer of ownership to Government destruction of goods under customs control and allocation of goods in free zones or free warehouses Relation between traders and customs Traders can have direct relation with customs or exploit customs representative (customs clearing agent) Customs representative shares responsibility on procedures he caries out on behalf of trader To operate as authorized customs representative any company is required to produce financial security covering at list 50 000 GEL Binding information ndash In many developed countries if trader doubts about the legality of operations he wants to perform he can require (an approval) from customs to make a decision prior to importation of goods It applies not only on imported cargo but any operation which must be approved by customs authorities Such information has binding power and trader cannot be subject to any punishment or prosecution if he follows the prior decision made by customs authorities Georgian customs has an obligation to provide prior decisions upon traders request but without binding power It means that if trader wants to put goods under specific regime and he asks customs about the legality of such operation he may receive prior approval (prior customs decision) but he isnrsquot insured from punishment even in case when he follows such decision because any other customs officer can interpret the legislation in different way Customs penalties ndash Penalties are addressed to specific violations and the amount of penalty is firmly defined for each case This doesnrsquot give customs officer flexibility in decision-making On one hand flexibility is very important to make fair and reasonable decisions but on the another hand such approach eliminates corruption risks Total exclusion of human factor resulted unfair treatment to traders who make mistakes If two traders reduced duties but first did it by mistake and another did it intentionally both are treated with the same severe measures because legislation doesnrsquot allow investigation of cases to find out whether it was a fraud or mistake This problem requests immediate respond Voluntary compliance ndash In any normal trade relation there are cases when certain financial aspects concerning to shipment became clear after goods

10

are imported and released Amendment (correction) of customs declaration is standard action to keep records clean in such cases In Georgia voluntary amendment of SAD is available after the release of goods but legislation doesnrsquot protect trader from penalties or any other punishment measures applicable to the mistake made at the moment of release of goods Such provisions do not stimulate traders to keep their records clean and remain compliant Origination of goods ndash Georgian legislation provides rules for preferential and non-preferential origination of goods Preferential origination applies to goods imported from Turkey and former CIS countries with which Georgia has Free Trade regime Rules are defined in relevant FTA documents Customs warehouses and ICDs ndash Majority of shipments are cleared in customs warehouses which are authorized by customs Unfortunately legislation does not differentiate customs warehouses and ICDs These are private owned bonded terminals with very strict security requirements authorized for temporary storage of goods until it is cleared They are also authorized to serve for commercial long-term storage of un-cleared goods So Georgian legislation establishes some kind of syndicate of ICD and customs warehouse

5 Post-clearance Customs Control

Capacity Post-Clearance control remains a biggest challenge of modern

Georgian Customs administration However top management understands the importance of high-qualified post-clearance team and is fully committed to the idea Customs is in need of qualified post-clearance team that can effectively eliminate any financial risks caused by simplification of customs clearance procedures at the frontier Unit is in place within the customs control department responsible for customs audit though it needs long-term development strategy to comply to necessary standards Auditors are trained in various fields relevant to their duties

customs procedures and rules that have to be applied

risk analysis and risk assessment

bookkeeping

Electronic data processing (EDP) auditing Trainings are not provided on a continuous basis Legislation Relevant Customs legislation is under construction When new customs code entered into force in January 2007 post-clearance control

11

regulating provisions were missing due to lack of capacity for its implementation In 2009 Revenue Service decided to begin implementation of post-clearance control and relevant Chapter IV was added to the Customs Code but regulations are very general and poor mainly repeating regulating provisions of tax audit Detailed instructions should be elaborated providing detailed guidelines for customs officers Guidelines should cover Valuation audit Origination of goods Commodity classification Audit of specific customs procedures (IPR PCC Warehousing End use relief etc) instructions for field audit interviewing techniques etc Existing practice Nowadays RS has slightly developed methods of auditing

customs warehouses Customs valuation inspection is carried out regularly but approach is very standardized mainly they use the method of double-checking of exported value of goods in the country of export This method is based on intergovernmental cooperation and there were cases when it helped to disclose fraud nevertheless sometimes it is not effective especially in trade relations with countries with liberal economies like Dubai that donrsquot control export value of goods

6 Risk management

Overview Risk based cargo selectivity program was implemented in Georgian customs in 2009 At this stage risk-management operates in inland customs clearance offices but not at the border checkpoints Risk criteria integrated in customs information processing program ―ASYCUDA WORLD enables automatic selection for physical inspection of declared cargo Now only 10-15 of all cargo is selected for physical inspection instead of total inspections that used to be pure formality and absolute waste of time and resources for customs because of low effectiveness As a result customs uses its resources more effectively now Physical inspections are carried out according to specific instructions provided by legislation or generated by electronic system based on risk analysis Declared goods can go through one of the four channels

- Green (automatic release) - Yellow (only documentary inspection) - Red (documentary and physical inspection) - Blue (same as green but subject to post-clearance audit)

However no similar systems are in place for anti-smuggling anti-contraband and protective measures at the border checkpoints Risk management

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

6

Revenue service

Central headquarters Regional centers

Administrative department

32

Apparatus of head of

revenue service

6

Legal department

11

Disputes department

30

Department of

methodology

35

Customs control

department

65

Internal audit

15

Revenue collection

department

38

Bureau of international

relations

7

Tbilisi (detailed structure -

see below)

Rustavi

Telavi

Gori

Kutaisi

Poti

Batumi

Akhaltsikhe

Guria

Abkhazia

7

3 Human resource management

Reforms Customs staff reform was the first important step taken by Georgian Government for modernization of the system At present over nine hundred customs officers work in Georgian Customs offices Since 2005 more than 95 of the staff has been changed Reforms intended to remove all corrupt personal and replace them with young motivated staff Administration has elaborated standard rules according to which new recruits have to go through two month training and four-month internship program before appointed Replacement process was very intensive and it went by eliminating any links between new and old staff which resulted in two outcomes 1) New team was prevented to inheriting a total corruption from their predecessors 2) they lack practical experience and skills Nowadays itrsquos difficult to find a customs officer with more than two or three years experience Anyway such radical approach to staff reform is approved by Georgian customs administration as they got rid of corruption (level of corruption was dramatically reduced in last five years) but it brought to another problem that seriously damages business climate and trade facilitation ndash Lack of professionalism and skill of Customs officials Training Training capacity isnrsquot highly developed though RS made significant progress in this direction last year Nowadays customs officers are trained mainly in the Academy of MoIF while the Financial Academy of MoF is newly established and just began working on the strategy and action plans 189 customs officers were trained in various professional courses during 2009 Training materials are developed by trainers who have biggest positive experience of working in the Georgian customs system though they arenrsquot certified trainers Weakness Very high turnover of customs staff is still evident 167 new

recruits were trained only on 2009 Customs administration doesnrsquot have any effective program for retention motivation and long term development of personal

Tbilisi

Regional Center

Administrat

ion 38

Legal unit 24

IT and

analytical

unit 7

Service unit 154

Control

unit 148

Unit for

special

measures

Customs

clearance

and control

unit

121

Customs

checkpoint

ldquoTbilisi

Airportrdquo

39

Customs

checkpoint

ldquoKazbegirdquo 42

8

The roles and responsibilities of each function and of employees working at all levels within each function arenrsquot clearly defined Job descriptions highlighting the minimum levels of knowledge skills and aptitude required for competent performance is not in place Code of conduct for customs officers isnrsquot elaborated Only a few provisions can be found in various regulations about customs officersrsquo behavior Anyway customs became much more user-friendly and consumer oriented during recent 2-3 years but there is a lot more to be done

4 Customs legislation

Structure and hierarchy Georgian Customs legislation consists of International Conventions international bilateral and multilateral agreements Customs code of Georgia and Secondary customs legislation International Conventions and agreements take priority over national legislation where it contradicts They are signed by Government of Georgia and ratified by Parliament Customs code is the main document laying down general provisions and policies of customs administration Present Georgian Customs code was elaborated on bases of EU customs code in 2006 and entered into force from January 1 2007 Customs code is approved by Parliament of Georgia and it takes priority over secondary customs legislation Secondary customs legislation generally provides implementing provisions for Customs code Secondary legislation is approved by decrees of President Government of Georgia and Minister of Finance

List of international conventions in customs area that Georgia has signed

1 International convention on harmonized commodity description and coding

system ndash since 2009

2 Convention on Containers ndash since 1999

3 International convention on mutual administrative assistance for the

prevention investigation and repression of customs offences (Nairobi

convention) ndash since 2009

4 International convention on harmonization of frontier controls of goods -

since 1999

5 Customs convention on international transport of goods under cover of

TIR carnets (TIR convention) ndash since 1994

6 Convention on the contract for the international carriage of goods by road

(CMR convention) ndash since 1999

9

Overview of Georgian customs legislation Customs legislation was elaborated according to EU model in 2006 However some gaps and differences between Georgian and EU legislation are evident Customs regimes ndash Seven customs regimes are in place Release for free circulation Export Transit Temporary import Customs warehousing Inward processing relief Outward processing relief Processing under customs control doesnrsquot exist as a separate regime but its provisions were merged with Inward processing relief creating one regime Besides there are approved treatments like re-export abandonment of cargo with transfer of ownership to Government destruction of goods under customs control and allocation of goods in free zones or free warehouses Relation between traders and customs Traders can have direct relation with customs or exploit customs representative (customs clearing agent) Customs representative shares responsibility on procedures he caries out on behalf of trader To operate as authorized customs representative any company is required to produce financial security covering at list 50 000 GEL Binding information ndash In many developed countries if trader doubts about the legality of operations he wants to perform he can require (an approval) from customs to make a decision prior to importation of goods It applies not only on imported cargo but any operation which must be approved by customs authorities Such information has binding power and trader cannot be subject to any punishment or prosecution if he follows the prior decision made by customs authorities Georgian customs has an obligation to provide prior decisions upon traders request but without binding power It means that if trader wants to put goods under specific regime and he asks customs about the legality of such operation he may receive prior approval (prior customs decision) but he isnrsquot insured from punishment even in case when he follows such decision because any other customs officer can interpret the legislation in different way Customs penalties ndash Penalties are addressed to specific violations and the amount of penalty is firmly defined for each case This doesnrsquot give customs officer flexibility in decision-making On one hand flexibility is very important to make fair and reasonable decisions but on the another hand such approach eliminates corruption risks Total exclusion of human factor resulted unfair treatment to traders who make mistakes If two traders reduced duties but first did it by mistake and another did it intentionally both are treated with the same severe measures because legislation doesnrsquot allow investigation of cases to find out whether it was a fraud or mistake This problem requests immediate respond Voluntary compliance ndash In any normal trade relation there are cases when certain financial aspects concerning to shipment became clear after goods

10

are imported and released Amendment (correction) of customs declaration is standard action to keep records clean in such cases In Georgia voluntary amendment of SAD is available after the release of goods but legislation doesnrsquot protect trader from penalties or any other punishment measures applicable to the mistake made at the moment of release of goods Such provisions do not stimulate traders to keep their records clean and remain compliant Origination of goods ndash Georgian legislation provides rules for preferential and non-preferential origination of goods Preferential origination applies to goods imported from Turkey and former CIS countries with which Georgia has Free Trade regime Rules are defined in relevant FTA documents Customs warehouses and ICDs ndash Majority of shipments are cleared in customs warehouses which are authorized by customs Unfortunately legislation does not differentiate customs warehouses and ICDs These are private owned bonded terminals with very strict security requirements authorized for temporary storage of goods until it is cleared They are also authorized to serve for commercial long-term storage of un-cleared goods So Georgian legislation establishes some kind of syndicate of ICD and customs warehouse

5 Post-clearance Customs Control

Capacity Post-Clearance control remains a biggest challenge of modern

Georgian Customs administration However top management understands the importance of high-qualified post-clearance team and is fully committed to the idea Customs is in need of qualified post-clearance team that can effectively eliminate any financial risks caused by simplification of customs clearance procedures at the frontier Unit is in place within the customs control department responsible for customs audit though it needs long-term development strategy to comply to necessary standards Auditors are trained in various fields relevant to their duties

customs procedures and rules that have to be applied

risk analysis and risk assessment

bookkeeping

Electronic data processing (EDP) auditing Trainings are not provided on a continuous basis Legislation Relevant Customs legislation is under construction When new customs code entered into force in January 2007 post-clearance control

11

regulating provisions were missing due to lack of capacity for its implementation In 2009 Revenue Service decided to begin implementation of post-clearance control and relevant Chapter IV was added to the Customs Code but regulations are very general and poor mainly repeating regulating provisions of tax audit Detailed instructions should be elaborated providing detailed guidelines for customs officers Guidelines should cover Valuation audit Origination of goods Commodity classification Audit of specific customs procedures (IPR PCC Warehousing End use relief etc) instructions for field audit interviewing techniques etc Existing practice Nowadays RS has slightly developed methods of auditing

customs warehouses Customs valuation inspection is carried out regularly but approach is very standardized mainly they use the method of double-checking of exported value of goods in the country of export This method is based on intergovernmental cooperation and there were cases when it helped to disclose fraud nevertheless sometimes it is not effective especially in trade relations with countries with liberal economies like Dubai that donrsquot control export value of goods

6 Risk management

Overview Risk based cargo selectivity program was implemented in Georgian customs in 2009 At this stage risk-management operates in inland customs clearance offices but not at the border checkpoints Risk criteria integrated in customs information processing program ―ASYCUDA WORLD enables automatic selection for physical inspection of declared cargo Now only 10-15 of all cargo is selected for physical inspection instead of total inspections that used to be pure formality and absolute waste of time and resources for customs because of low effectiveness As a result customs uses its resources more effectively now Physical inspections are carried out according to specific instructions provided by legislation or generated by electronic system based on risk analysis Declared goods can go through one of the four channels

- Green (automatic release) - Yellow (only documentary inspection) - Red (documentary and physical inspection) - Blue (same as green but subject to post-clearance audit)

However no similar systems are in place for anti-smuggling anti-contraband and protective measures at the border checkpoints Risk management

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

7

3 Human resource management

Reforms Customs staff reform was the first important step taken by Georgian Government for modernization of the system At present over nine hundred customs officers work in Georgian Customs offices Since 2005 more than 95 of the staff has been changed Reforms intended to remove all corrupt personal and replace them with young motivated staff Administration has elaborated standard rules according to which new recruits have to go through two month training and four-month internship program before appointed Replacement process was very intensive and it went by eliminating any links between new and old staff which resulted in two outcomes 1) New team was prevented to inheriting a total corruption from their predecessors 2) they lack practical experience and skills Nowadays itrsquos difficult to find a customs officer with more than two or three years experience Anyway such radical approach to staff reform is approved by Georgian customs administration as they got rid of corruption (level of corruption was dramatically reduced in last five years) but it brought to another problem that seriously damages business climate and trade facilitation ndash Lack of professionalism and skill of Customs officials Training Training capacity isnrsquot highly developed though RS made significant progress in this direction last year Nowadays customs officers are trained mainly in the Academy of MoIF while the Financial Academy of MoF is newly established and just began working on the strategy and action plans 189 customs officers were trained in various professional courses during 2009 Training materials are developed by trainers who have biggest positive experience of working in the Georgian customs system though they arenrsquot certified trainers Weakness Very high turnover of customs staff is still evident 167 new

recruits were trained only on 2009 Customs administration doesnrsquot have any effective program for retention motivation and long term development of personal

Tbilisi

Regional Center

Administrat

ion 38

Legal unit 24

IT and

analytical

unit 7

Service unit 154

Control

unit 148

Unit for

special

measures

Customs

clearance

and control

unit

121

Customs

checkpoint

ldquoTbilisi

Airportrdquo

39

Customs

checkpoint

ldquoKazbegirdquo 42

8

The roles and responsibilities of each function and of employees working at all levels within each function arenrsquot clearly defined Job descriptions highlighting the minimum levels of knowledge skills and aptitude required for competent performance is not in place Code of conduct for customs officers isnrsquot elaborated Only a few provisions can be found in various regulations about customs officersrsquo behavior Anyway customs became much more user-friendly and consumer oriented during recent 2-3 years but there is a lot more to be done

4 Customs legislation

Structure and hierarchy Georgian Customs legislation consists of International Conventions international bilateral and multilateral agreements Customs code of Georgia and Secondary customs legislation International Conventions and agreements take priority over national legislation where it contradicts They are signed by Government of Georgia and ratified by Parliament Customs code is the main document laying down general provisions and policies of customs administration Present Georgian Customs code was elaborated on bases of EU customs code in 2006 and entered into force from January 1 2007 Customs code is approved by Parliament of Georgia and it takes priority over secondary customs legislation Secondary customs legislation generally provides implementing provisions for Customs code Secondary legislation is approved by decrees of President Government of Georgia and Minister of Finance

List of international conventions in customs area that Georgia has signed

1 International convention on harmonized commodity description and coding

system ndash since 2009

2 Convention on Containers ndash since 1999

3 International convention on mutual administrative assistance for the

prevention investigation and repression of customs offences (Nairobi

convention) ndash since 2009

4 International convention on harmonization of frontier controls of goods -

since 1999

5 Customs convention on international transport of goods under cover of

TIR carnets (TIR convention) ndash since 1994

6 Convention on the contract for the international carriage of goods by road

(CMR convention) ndash since 1999

9

Overview of Georgian customs legislation Customs legislation was elaborated according to EU model in 2006 However some gaps and differences between Georgian and EU legislation are evident Customs regimes ndash Seven customs regimes are in place Release for free circulation Export Transit Temporary import Customs warehousing Inward processing relief Outward processing relief Processing under customs control doesnrsquot exist as a separate regime but its provisions were merged with Inward processing relief creating one regime Besides there are approved treatments like re-export abandonment of cargo with transfer of ownership to Government destruction of goods under customs control and allocation of goods in free zones or free warehouses Relation between traders and customs Traders can have direct relation with customs or exploit customs representative (customs clearing agent) Customs representative shares responsibility on procedures he caries out on behalf of trader To operate as authorized customs representative any company is required to produce financial security covering at list 50 000 GEL Binding information ndash In many developed countries if trader doubts about the legality of operations he wants to perform he can require (an approval) from customs to make a decision prior to importation of goods It applies not only on imported cargo but any operation which must be approved by customs authorities Such information has binding power and trader cannot be subject to any punishment or prosecution if he follows the prior decision made by customs authorities Georgian customs has an obligation to provide prior decisions upon traders request but without binding power It means that if trader wants to put goods under specific regime and he asks customs about the legality of such operation he may receive prior approval (prior customs decision) but he isnrsquot insured from punishment even in case when he follows such decision because any other customs officer can interpret the legislation in different way Customs penalties ndash Penalties are addressed to specific violations and the amount of penalty is firmly defined for each case This doesnrsquot give customs officer flexibility in decision-making On one hand flexibility is very important to make fair and reasonable decisions but on the another hand such approach eliminates corruption risks Total exclusion of human factor resulted unfair treatment to traders who make mistakes If two traders reduced duties but first did it by mistake and another did it intentionally both are treated with the same severe measures because legislation doesnrsquot allow investigation of cases to find out whether it was a fraud or mistake This problem requests immediate respond Voluntary compliance ndash In any normal trade relation there are cases when certain financial aspects concerning to shipment became clear after goods

10

are imported and released Amendment (correction) of customs declaration is standard action to keep records clean in such cases In Georgia voluntary amendment of SAD is available after the release of goods but legislation doesnrsquot protect trader from penalties or any other punishment measures applicable to the mistake made at the moment of release of goods Such provisions do not stimulate traders to keep their records clean and remain compliant Origination of goods ndash Georgian legislation provides rules for preferential and non-preferential origination of goods Preferential origination applies to goods imported from Turkey and former CIS countries with which Georgia has Free Trade regime Rules are defined in relevant FTA documents Customs warehouses and ICDs ndash Majority of shipments are cleared in customs warehouses which are authorized by customs Unfortunately legislation does not differentiate customs warehouses and ICDs These are private owned bonded terminals with very strict security requirements authorized for temporary storage of goods until it is cleared They are also authorized to serve for commercial long-term storage of un-cleared goods So Georgian legislation establishes some kind of syndicate of ICD and customs warehouse

5 Post-clearance Customs Control

Capacity Post-Clearance control remains a biggest challenge of modern

Georgian Customs administration However top management understands the importance of high-qualified post-clearance team and is fully committed to the idea Customs is in need of qualified post-clearance team that can effectively eliminate any financial risks caused by simplification of customs clearance procedures at the frontier Unit is in place within the customs control department responsible for customs audit though it needs long-term development strategy to comply to necessary standards Auditors are trained in various fields relevant to their duties

customs procedures and rules that have to be applied

risk analysis and risk assessment

bookkeeping

Electronic data processing (EDP) auditing Trainings are not provided on a continuous basis Legislation Relevant Customs legislation is under construction When new customs code entered into force in January 2007 post-clearance control

11

regulating provisions were missing due to lack of capacity for its implementation In 2009 Revenue Service decided to begin implementation of post-clearance control and relevant Chapter IV was added to the Customs Code but regulations are very general and poor mainly repeating regulating provisions of tax audit Detailed instructions should be elaborated providing detailed guidelines for customs officers Guidelines should cover Valuation audit Origination of goods Commodity classification Audit of specific customs procedures (IPR PCC Warehousing End use relief etc) instructions for field audit interviewing techniques etc Existing practice Nowadays RS has slightly developed methods of auditing

customs warehouses Customs valuation inspection is carried out regularly but approach is very standardized mainly they use the method of double-checking of exported value of goods in the country of export This method is based on intergovernmental cooperation and there were cases when it helped to disclose fraud nevertheless sometimes it is not effective especially in trade relations with countries with liberal economies like Dubai that donrsquot control export value of goods

6 Risk management

Overview Risk based cargo selectivity program was implemented in Georgian customs in 2009 At this stage risk-management operates in inland customs clearance offices but not at the border checkpoints Risk criteria integrated in customs information processing program ―ASYCUDA WORLD enables automatic selection for physical inspection of declared cargo Now only 10-15 of all cargo is selected for physical inspection instead of total inspections that used to be pure formality and absolute waste of time and resources for customs because of low effectiveness As a result customs uses its resources more effectively now Physical inspections are carried out according to specific instructions provided by legislation or generated by electronic system based on risk analysis Declared goods can go through one of the four channels

- Green (automatic release) - Yellow (only documentary inspection) - Red (documentary and physical inspection) - Blue (same as green but subject to post-clearance audit)

However no similar systems are in place for anti-smuggling anti-contraband and protective measures at the border checkpoints Risk management

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

8

The roles and responsibilities of each function and of employees working at all levels within each function arenrsquot clearly defined Job descriptions highlighting the minimum levels of knowledge skills and aptitude required for competent performance is not in place Code of conduct for customs officers isnrsquot elaborated Only a few provisions can be found in various regulations about customs officersrsquo behavior Anyway customs became much more user-friendly and consumer oriented during recent 2-3 years but there is a lot more to be done

4 Customs legislation

Structure and hierarchy Georgian Customs legislation consists of International Conventions international bilateral and multilateral agreements Customs code of Georgia and Secondary customs legislation International Conventions and agreements take priority over national legislation where it contradicts They are signed by Government of Georgia and ratified by Parliament Customs code is the main document laying down general provisions and policies of customs administration Present Georgian Customs code was elaborated on bases of EU customs code in 2006 and entered into force from January 1 2007 Customs code is approved by Parliament of Georgia and it takes priority over secondary customs legislation Secondary customs legislation generally provides implementing provisions for Customs code Secondary legislation is approved by decrees of President Government of Georgia and Minister of Finance

List of international conventions in customs area that Georgia has signed

1 International convention on harmonized commodity description and coding

system ndash since 2009

2 Convention on Containers ndash since 1999

3 International convention on mutual administrative assistance for the

prevention investigation and repression of customs offences (Nairobi

convention) ndash since 2009

4 International convention on harmonization of frontier controls of goods -

since 1999

5 Customs convention on international transport of goods under cover of

TIR carnets (TIR convention) ndash since 1994

6 Convention on the contract for the international carriage of goods by road

(CMR convention) ndash since 1999

9

Overview of Georgian customs legislation Customs legislation was elaborated according to EU model in 2006 However some gaps and differences between Georgian and EU legislation are evident Customs regimes ndash Seven customs regimes are in place Release for free circulation Export Transit Temporary import Customs warehousing Inward processing relief Outward processing relief Processing under customs control doesnrsquot exist as a separate regime but its provisions were merged with Inward processing relief creating one regime Besides there are approved treatments like re-export abandonment of cargo with transfer of ownership to Government destruction of goods under customs control and allocation of goods in free zones or free warehouses Relation between traders and customs Traders can have direct relation with customs or exploit customs representative (customs clearing agent) Customs representative shares responsibility on procedures he caries out on behalf of trader To operate as authorized customs representative any company is required to produce financial security covering at list 50 000 GEL Binding information ndash In many developed countries if trader doubts about the legality of operations he wants to perform he can require (an approval) from customs to make a decision prior to importation of goods It applies not only on imported cargo but any operation which must be approved by customs authorities Such information has binding power and trader cannot be subject to any punishment or prosecution if he follows the prior decision made by customs authorities Georgian customs has an obligation to provide prior decisions upon traders request but without binding power It means that if trader wants to put goods under specific regime and he asks customs about the legality of such operation he may receive prior approval (prior customs decision) but he isnrsquot insured from punishment even in case when he follows such decision because any other customs officer can interpret the legislation in different way Customs penalties ndash Penalties are addressed to specific violations and the amount of penalty is firmly defined for each case This doesnrsquot give customs officer flexibility in decision-making On one hand flexibility is very important to make fair and reasonable decisions but on the another hand such approach eliminates corruption risks Total exclusion of human factor resulted unfair treatment to traders who make mistakes If two traders reduced duties but first did it by mistake and another did it intentionally both are treated with the same severe measures because legislation doesnrsquot allow investigation of cases to find out whether it was a fraud or mistake This problem requests immediate respond Voluntary compliance ndash In any normal trade relation there are cases when certain financial aspects concerning to shipment became clear after goods

10

are imported and released Amendment (correction) of customs declaration is standard action to keep records clean in such cases In Georgia voluntary amendment of SAD is available after the release of goods but legislation doesnrsquot protect trader from penalties or any other punishment measures applicable to the mistake made at the moment of release of goods Such provisions do not stimulate traders to keep their records clean and remain compliant Origination of goods ndash Georgian legislation provides rules for preferential and non-preferential origination of goods Preferential origination applies to goods imported from Turkey and former CIS countries with which Georgia has Free Trade regime Rules are defined in relevant FTA documents Customs warehouses and ICDs ndash Majority of shipments are cleared in customs warehouses which are authorized by customs Unfortunately legislation does not differentiate customs warehouses and ICDs These are private owned bonded terminals with very strict security requirements authorized for temporary storage of goods until it is cleared They are also authorized to serve for commercial long-term storage of un-cleared goods So Georgian legislation establishes some kind of syndicate of ICD and customs warehouse

5 Post-clearance Customs Control

Capacity Post-Clearance control remains a biggest challenge of modern

Georgian Customs administration However top management understands the importance of high-qualified post-clearance team and is fully committed to the idea Customs is in need of qualified post-clearance team that can effectively eliminate any financial risks caused by simplification of customs clearance procedures at the frontier Unit is in place within the customs control department responsible for customs audit though it needs long-term development strategy to comply to necessary standards Auditors are trained in various fields relevant to their duties

customs procedures and rules that have to be applied

risk analysis and risk assessment

bookkeeping

Electronic data processing (EDP) auditing Trainings are not provided on a continuous basis Legislation Relevant Customs legislation is under construction When new customs code entered into force in January 2007 post-clearance control

11

regulating provisions were missing due to lack of capacity for its implementation In 2009 Revenue Service decided to begin implementation of post-clearance control and relevant Chapter IV was added to the Customs Code but regulations are very general and poor mainly repeating regulating provisions of tax audit Detailed instructions should be elaborated providing detailed guidelines for customs officers Guidelines should cover Valuation audit Origination of goods Commodity classification Audit of specific customs procedures (IPR PCC Warehousing End use relief etc) instructions for field audit interviewing techniques etc Existing practice Nowadays RS has slightly developed methods of auditing

customs warehouses Customs valuation inspection is carried out regularly but approach is very standardized mainly they use the method of double-checking of exported value of goods in the country of export This method is based on intergovernmental cooperation and there were cases when it helped to disclose fraud nevertheless sometimes it is not effective especially in trade relations with countries with liberal economies like Dubai that donrsquot control export value of goods

6 Risk management

Overview Risk based cargo selectivity program was implemented in Georgian customs in 2009 At this stage risk-management operates in inland customs clearance offices but not at the border checkpoints Risk criteria integrated in customs information processing program ―ASYCUDA WORLD enables automatic selection for physical inspection of declared cargo Now only 10-15 of all cargo is selected for physical inspection instead of total inspections that used to be pure formality and absolute waste of time and resources for customs because of low effectiveness As a result customs uses its resources more effectively now Physical inspections are carried out according to specific instructions provided by legislation or generated by electronic system based on risk analysis Declared goods can go through one of the four channels

- Green (automatic release) - Yellow (only documentary inspection) - Red (documentary and physical inspection) - Blue (same as green but subject to post-clearance audit)

However no similar systems are in place for anti-smuggling anti-contraband and protective measures at the border checkpoints Risk management

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

9

Overview of Georgian customs legislation Customs legislation was elaborated according to EU model in 2006 However some gaps and differences between Georgian and EU legislation are evident Customs regimes ndash Seven customs regimes are in place Release for free circulation Export Transit Temporary import Customs warehousing Inward processing relief Outward processing relief Processing under customs control doesnrsquot exist as a separate regime but its provisions were merged with Inward processing relief creating one regime Besides there are approved treatments like re-export abandonment of cargo with transfer of ownership to Government destruction of goods under customs control and allocation of goods in free zones or free warehouses Relation between traders and customs Traders can have direct relation with customs or exploit customs representative (customs clearing agent) Customs representative shares responsibility on procedures he caries out on behalf of trader To operate as authorized customs representative any company is required to produce financial security covering at list 50 000 GEL Binding information ndash In many developed countries if trader doubts about the legality of operations he wants to perform he can require (an approval) from customs to make a decision prior to importation of goods It applies not only on imported cargo but any operation which must be approved by customs authorities Such information has binding power and trader cannot be subject to any punishment or prosecution if he follows the prior decision made by customs authorities Georgian customs has an obligation to provide prior decisions upon traders request but without binding power It means that if trader wants to put goods under specific regime and he asks customs about the legality of such operation he may receive prior approval (prior customs decision) but he isnrsquot insured from punishment even in case when he follows such decision because any other customs officer can interpret the legislation in different way Customs penalties ndash Penalties are addressed to specific violations and the amount of penalty is firmly defined for each case This doesnrsquot give customs officer flexibility in decision-making On one hand flexibility is very important to make fair and reasonable decisions but on the another hand such approach eliminates corruption risks Total exclusion of human factor resulted unfair treatment to traders who make mistakes If two traders reduced duties but first did it by mistake and another did it intentionally both are treated with the same severe measures because legislation doesnrsquot allow investigation of cases to find out whether it was a fraud or mistake This problem requests immediate respond Voluntary compliance ndash In any normal trade relation there are cases when certain financial aspects concerning to shipment became clear after goods

10

are imported and released Amendment (correction) of customs declaration is standard action to keep records clean in such cases In Georgia voluntary amendment of SAD is available after the release of goods but legislation doesnrsquot protect trader from penalties or any other punishment measures applicable to the mistake made at the moment of release of goods Such provisions do not stimulate traders to keep their records clean and remain compliant Origination of goods ndash Georgian legislation provides rules for preferential and non-preferential origination of goods Preferential origination applies to goods imported from Turkey and former CIS countries with which Georgia has Free Trade regime Rules are defined in relevant FTA documents Customs warehouses and ICDs ndash Majority of shipments are cleared in customs warehouses which are authorized by customs Unfortunately legislation does not differentiate customs warehouses and ICDs These are private owned bonded terminals with very strict security requirements authorized for temporary storage of goods until it is cleared They are also authorized to serve for commercial long-term storage of un-cleared goods So Georgian legislation establishes some kind of syndicate of ICD and customs warehouse

5 Post-clearance Customs Control

Capacity Post-Clearance control remains a biggest challenge of modern

Georgian Customs administration However top management understands the importance of high-qualified post-clearance team and is fully committed to the idea Customs is in need of qualified post-clearance team that can effectively eliminate any financial risks caused by simplification of customs clearance procedures at the frontier Unit is in place within the customs control department responsible for customs audit though it needs long-term development strategy to comply to necessary standards Auditors are trained in various fields relevant to their duties

customs procedures and rules that have to be applied

risk analysis and risk assessment

bookkeeping

Electronic data processing (EDP) auditing Trainings are not provided on a continuous basis Legislation Relevant Customs legislation is under construction When new customs code entered into force in January 2007 post-clearance control

11

regulating provisions were missing due to lack of capacity for its implementation In 2009 Revenue Service decided to begin implementation of post-clearance control and relevant Chapter IV was added to the Customs Code but regulations are very general and poor mainly repeating regulating provisions of tax audit Detailed instructions should be elaborated providing detailed guidelines for customs officers Guidelines should cover Valuation audit Origination of goods Commodity classification Audit of specific customs procedures (IPR PCC Warehousing End use relief etc) instructions for field audit interviewing techniques etc Existing practice Nowadays RS has slightly developed methods of auditing

customs warehouses Customs valuation inspection is carried out regularly but approach is very standardized mainly they use the method of double-checking of exported value of goods in the country of export This method is based on intergovernmental cooperation and there were cases when it helped to disclose fraud nevertheless sometimes it is not effective especially in trade relations with countries with liberal economies like Dubai that donrsquot control export value of goods

6 Risk management

Overview Risk based cargo selectivity program was implemented in Georgian customs in 2009 At this stage risk-management operates in inland customs clearance offices but not at the border checkpoints Risk criteria integrated in customs information processing program ―ASYCUDA WORLD enables automatic selection for physical inspection of declared cargo Now only 10-15 of all cargo is selected for physical inspection instead of total inspections that used to be pure formality and absolute waste of time and resources for customs because of low effectiveness As a result customs uses its resources more effectively now Physical inspections are carried out according to specific instructions provided by legislation or generated by electronic system based on risk analysis Declared goods can go through one of the four channels

- Green (automatic release) - Yellow (only documentary inspection) - Red (documentary and physical inspection) - Blue (same as green but subject to post-clearance audit)

However no similar systems are in place for anti-smuggling anti-contraband and protective measures at the border checkpoints Risk management

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

10

are imported and released Amendment (correction) of customs declaration is standard action to keep records clean in such cases In Georgia voluntary amendment of SAD is available after the release of goods but legislation doesnrsquot protect trader from penalties or any other punishment measures applicable to the mistake made at the moment of release of goods Such provisions do not stimulate traders to keep their records clean and remain compliant Origination of goods ndash Georgian legislation provides rules for preferential and non-preferential origination of goods Preferential origination applies to goods imported from Turkey and former CIS countries with which Georgia has Free Trade regime Rules are defined in relevant FTA documents Customs warehouses and ICDs ndash Majority of shipments are cleared in customs warehouses which are authorized by customs Unfortunately legislation does not differentiate customs warehouses and ICDs These are private owned bonded terminals with very strict security requirements authorized for temporary storage of goods until it is cleared They are also authorized to serve for commercial long-term storage of un-cleared goods So Georgian legislation establishes some kind of syndicate of ICD and customs warehouse

5 Post-clearance Customs Control

Capacity Post-Clearance control remains a biggest challenge of modern

Georgian Customs administration However top management understands the importance of high-qualified post-clearance team and is fully committed to the idea Customs is in need of qualified post-clearance team that can effectively eliminate any financial risks caused by simplification of customs clearance procedures at the frontier Unit is in place within the customs control department responsible for customs audit though it needs long-term development strategy to comply to necessary standards Auditors are trained in various fields relevant to their duties

customs procedures and rules that have to be applied

risk analysis and risk assessment

bookkeeping

Electronic data processing (EDP) auditing Trainings are not provided on a continuous basis Legislation Relevant Customs legislation is under construction When new customs code entered into force in January 2007 post-clearance control

11

regulating provisions were missing due to lack of capacity for its implementation In 2009 Revenue Service decided to begin implementation of post-clearance control and relevant Chapter IV was added to the Customs Code but regulations are very general and poor mainly repeating regulating provisions of tax audit Detailed instructions should be elaborated providing detailed guidelines for customs officers Guidelines should cover Valuation audit Origination of goods Commodity classification Audit of specific customs procedures (IPR PCC Warehousing End use relief etc) instructions for field audit interviewing techniques etc Existing practice Nowadays RS has slightly developed methods of auditing

customs warehouses Customs valuation inspection is carried out regularly but approach is very standardized mainly they use the method of double-checking of exported value of goods in the country of export This method is based on intergovernmental cooperation and there were cases when it helped to disclose fraud nevertheless sometimes it is not effective especially in trade relations with countries with liberal economies like Dubai that donrsquot control export value of goods

6 Risk management

Overview Risk based cargo selectivity program was implemented in Georgian customs in 2009 At this stage risk-management operates in inland customs clearance offices but not at the border checkpoints Risk criteria integrated in customs information processing program ―ASYCUDA WORLD enables automatic selection for physical inspection of declared cargo Now only 10-15 of all cargo is selected for physical inspection instead of total inspections that used to be pure formality and absolute waste of time and resources for customs because of low effectiveness As a result customs uses its resources more effectively now Physical inspections are carried out according to specific instructions provided by legislation or generated by electronic system based on risk analysis Declared goods can go through one of the four channels

- Green (automatic release) - Yellow (only documentary inspection) - Red (documentary and physical inspection) - Blue (same as green but subject to post-clearance audit)

However no similar systems are in place for anti-smuggling anti-contraband and protective measures at the border checkpoints Risk management

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

11

regulating provisions were missing due to lack of capacity for its implementation In 2009 Revenue Service decided to begin implementation of post-clearance control and relevant Chapter IV was added to the Customs Code but regulations are very general and poor mainly repeating regulating provisions of tax audit Detailed instructions should be elaborated providing detailed guidelines for customs officers Guidelines should cover Valuation audit Origination of goods Commodity classification Audit of specific customs procedures (IPR PCC Warehousing End use relief etc) instructions for field audit interviewing techniques etc Existing practice Nowadays RS has slightly developed methods of auditing

customs warehouses Customs valuation inspection is carried out regularly but approach is very standardized mainly they use the method of double-checking of exported value of goods in the country of export This method is based on intergovernmental cooperation and there were cases when it helped to disclose fraud nevertheless sometimes it is not effective especially in trade relations with countries with liberal economies like Dubai that donrsquot control export value of goods

6 Risk management

Overview Risk based cargo selectivity program was implemented in Georgian customs in 2009 At this stage risk-management operates in inland customs clearance offices but not at the border checkpoints Risk criteria integrated in customs information processing program ―ASYCUDA WORLD enables automatic selection for physical inspection of declared cargo Now only 10-15 of all cargo is selected for physical inspection instead of total inspections that used to be pure formality and absolute waste of time and resources for customs because of low effectiveness As a result customs uses its resources more effectively now Physical inspections are carried out according to specific instructions provided by legislation or generated by electronic system based on risk analysis Declared goods can go through one of the four channels

- Green (automatic release) - Yellow (only documentary inspection) - Red (documentary and physical inspection) - Blue (same as green but subject to post-clearance audit)

However no similar systems are in place for anti-smuggling anti-contraband and protective measures at the border checkpoints Risk management

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

12

doesnrsquot apply to transit module This fact proves once again that Georgian customs administration is mainly oriented on fiscal targets and pays less attention to original function of customs ndash Protection of society

Benefits Reduction of customs clearance time reduction of customs clearance costs creation of non-corrupt environment by minimizing human factor in decision-making process Weakness - Criteria must be updated regularly to keep the system effective and address to risky cargo Unfortunately current system doesnrsquot immediately respond to any changes in import-export risks - Georgian customs administration has simply defined the percentage of how much cargo must be subject to physical inspection and this threshold is uncial for entire country Unfortunately this decision isnrsquot based on any justified judgment of risks according to regions clearance offices seasonal risks human resources etc - Risk Criteria should be further developed and fine-tuned and a data collection system for risk analysis in ASYCUDA World application should be implemented to fully benefit from risk modules

7 Customs valuation

Correct implementation of customs valuation rules ihas been problematic in Georgia since long time As any developing country we find it difficult to follow rules provided by GATT Georgia is a member of WTO since 2000 so by joining this international organization we took an obligation to implement all those trade related issues according to WTO frameworks However if we analyze legislation in the area of customs valuation we could hardly notice minor differences between Georgian legislation and ―Agreement on implementation of article VII of GATT Georgian customs code covers all aspects of customs valuation in line with international standards though we experience big problems in practical implementation of what is written on the paper Problems are the following

No adequate capacity for valuation audits

No professional resources for valuation audits

Instructions for valuation audit arenrsquot developed

Very high risk trade partners

Undervaluation causes huge budgetary problems due to significant share of customs duties in state budget

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

13

Due to abovementioned problems Georgian customs tried to control undervaluation problem by unacceptable measures during 2005-2008 The price list was issued establishing prices (customs value) for all kinds of cargo according to which customs was clearing imported goods It was critically discriminative for shipments from specific risky countries because invoices of such shipments were totally rejected and clearance was possible only on basis of customs values given in price lists Definately such rules were against any civilized standards of international trade relations and customs got reed of this practice from 2008 Now absolute majority of shipments are cleared according to transaction value method (first method) but there still are cases when customs administration violates valuation rules and makes unreasonable correction of declared customs value Despite of such changes (switching to first method of customs valuation) I would say that problem isnrsquot solved Problem is only partially solved or maybe we can say that itrsquos solved for business only On another side there are increased risks of undervaluation due to weakening of valuation control at the frontier while no effective post-clearance valuation audit systems are in place Possible solution Only strong capacity building within customs administration (post-clearance valuation audit) can balance risks and normalize relations between customs and trade sector Within the implementation of GATT valuation standards a system to properly monitor invoice values needs to be put in place urgently to mitigate the risks on undervaluation The importance of this issue is doubtless as it is directly connected to one of two major interests of customs trader - ldquoHow much customs duty I have to payrdquo

8 Import-export duties and revenue collection Georgian Customs administrates import duties that include import VAT and Excise Customs duty and Customs fee Government was following a strategy intending to reduce Customs duty gradually until the absolute abolition During 2007-2009 only food products and narrow range of constriction materials were charged by customs duty but due to increased financial needs during global economic crisis Government

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

14

increased the number of goods that are charged by customs duty Duty rate differs up to 12 and is calculated based on customs value of goods Import VAT has the biggest share in import duties VAT rate is 18 and is calculated based on import customs value of goods plus all applicable other import duties according to Georgian legislation Excise is charged according to amount of imported goods with no respect of value of goods Customs fee is charged for customs services like clearance registration of goods paperwork etc Customs fee is 60 EURO per SAD No export duties are in place with only exception of Iron wastes which is excisable VAT and Excise duty is zero rated on export

Table 1 Revenue performancemdashcentral government 2005ndash09

(GEL millions)

2005 2006 2007 2008 2009

Total collections

Including

24115 31494 43917 47527 43889

Indirect taxes 1 12738 16683 24023 25875 24949

- VAT 9874 13327 19737 20690 20517

- Excises 2864 3356 4286 5185 4432

Direct taxes 5000 7270 10816 18886 16363

- Corporate income tax

2103 3411 5548 5923 5184

- Personal income tax

2907 3859 5268 12963 11189

Other taxes 5132 6217 8553 2247 2206

Customs duty 1234 1324 520 519 359

1 60ndash65 percent of VAT and 70ndash75 percent of excise taxes are collected on imports

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

15

Table 2 Customs collectionsmdashdistribution by regional centers (2009) (GEL millions)

VAT Excises Others Customs duties

Total

- Tbilisi Regional Center

9117 2020 31 196 11366

- Kutaisi Regional Center

323 164 02 05 496

- Rustavi Regional Center

180 345 23 42 591

- Poti Regional Center 1096 379 16 61 1553

- Batumi Regional Center

1486 366 16 42 1911

- Telavi Regional Center

06 09 00 01 17

- Akhaltsikhe Regional Center

52 04 00 08 67

Total 12264 3289 91 359 16004

Duties are paid via bank transfer upon submission of Customs clearance documents The process is paper based and requires simplification Payment of liabilities or potential liabilities is required or the appropriate security must be in place before goods are released for free circulation exceptions are available only for compliant traders (Gold list members who can credit duty payment without interest)

9 Customs disputes resolution

Dispute solution system remains biggest challenge in Georgian Customs which needs immediate respond

How it works In current customs code there is a direct link to Tax code dispute solution system saying that all customs disputes should be solved similarly to tax disputes We have three-stage appeals system with relevant hierarchy First and second stages are within the MoF system Any customs decision or can be appealed in Revenue Service Decision made by Revenue service can be appealed in the Dispute solution council of the MoF The third and highest step in the hierarchy is court where any previous decisions can

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

16

be appealed However if customs trader prefers he can directly appeal in the court ignoring all previous stages Right of appeal Due to recent changes in Georgian Customs Code right of

appeal is firmly granted to anybody despite the circumstances and his identity Cost effectiveness Cases of customs disputes is much less than tax

disputes There are specific reasons why traders avoid having disputes with customs Georgian legislation doesnrsquot allow release of goods before any customs liability is fulfilled If a trader appeals against customs decision then his shipment is generally arrested at customs until everything becomes clear Dispute solution process can last several weeks or even months if it goes through all three stages of appeal system While appeal is under process trader has to pay all logistical costs related to keeping goods in clearance depot container costs and any other treatment costs if necessary obviously it becomes not cost effective General provisions of Georgian Customs Code article 86 allows release of good if financial security (Bank guarantee Insurance policy cash deposit) covering all possible liabilities is provided though there are no exact rules of implementation of this norm Competence of court Court should balance decisions made by customs as

it is the only authority outside the MoF system where trader can appeal Unfortunately Courts are characterized with lack of competence in fiscal area There arenrsquot any fiscal specialized units within the court unlike criminal and multiple administrative directions There were cases when traders appealed in the court against customs decisions and court addressed to customs administration for clarification of certain technical details described in the appeal because in most cases court has no adequate professional resources to discuss customs appeals Such facts prove that Georgia canrsquot have fair dispute solution system if there is only one competent authority that makes decisions and discusses appeals against his decisions himself Transparency of decisions Another problem is transparency and power of precedent Decisions made by Revenue Service and MoFrsquos dispute solution council arenrsquot transparently published and accessible Subsequently decisions donrsquot have power of precedent which could be helpful

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

17

10 Authorized economic operators

Georgian customs legislation provides simplified procedures for compliant companies who meet certain criteria set by so called ―gold list program The program can be considered as analog of EU concept of authorized economic operators Criteria are based on trustworthiness and solidity of companies they should have clear records with tax and customs authorities At present over two hundred Georgian companies are participants of the ―gold list program and enjoy all its benefits

Benefits of program Credit in payment of customs duties ndash Importer can pay duties within one-month time from importation Possibility to clear the goods directly at importers premise ndash Program members donrsquot need to visit ICD to carry out clearance operations They can directly take the goods from borders to their warehouse Electronic submission of customs declaration (SAD) ndash Any importers other then ―gold list member is not authorized to use internet access to the customs system to submit documents Documents are not necessarily required ndash Participants of program should provide customs documentation only in case if the shipment is recognized risky by the system Weakness Criteria set for participation in the program are discriminative for

small traders as only large traders are accepted At present program covers only limited amount of customs regimes but it is still under intensive development process

11 IT implementation

IT is one of the most reformed areas in customs administration during last five years It is very important that IT department was restructured recently and it became LEPL under the umbrella of ministry of finance IT implementation strategy covers four directions Support and development of existing systems Support for business continuity Expansion of electronic services Development of new integrated solution The MoFrsquos IT department is planning to implement the ITSM (Information Technology systems management) methodology and prepare a full transition to ITIL (information Technology Infrastructure Library) standards next year Complex Security and ICT Systems assessment that should become a foundation for the transition to ITIL standards was implemented in early 2010 Disaster recovery Business Continuity Center will be completed

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

18

in 2010 creating a guarantee for the stability and reliability of MoFrsquos ICT systems providing continuous support for all business processes Weakness Regular traders (except gold list members) customs

warehouses freight and customs agents donrsquot have internet access to the system therefore paperless customs operations arenrsquot enabled in Georgia Implementation of services like e-filling e-payment e-submission of document can dramatically change the Level of development of Georgian Customs Georgian customs clear about 1000 SAD daily Due to technical inefficiency this declarations can be submitted only through Customs clearing agents (customs brokers) Clearing agents have access to customs electronic system through fiber optics cable This service costs on average 50 GEL which means that by proper implementation of customs e-filling trade sector can save 50 000 GEL daily operational costs ASYCUDA WORLD Customs is using ASYCYDA system for information processing and data exchange IT department is upgrading the system from old ―ASYCUDA++ version to a new ―ASYCUDA WORLD version which is already installed in all customs offices throughout the country Several crucial modules such as E-filling E-payment Safe-TIR e-exchange of information between other governments agencies arenrsquot implemented yet though these topics are in IT departmentrsquos priority list for nearest future System was audited by several European experts from different organizations and they concluded that it can meet highest operational standards Revenue Service receives very big support in this area from international donor organizations UNCTAD took responsibility to assist in implementation of ASYCUDA WORLD assistance includes training of staff technical assistance etc

12 Intellectual property rights

Legal basis for enforcement of IPR exists ―Law about border operations concerning to IPR protection contains relevant regulations though it may not be fully compliant with International agreements and standards (eg TRIPs agreement EC regulations) Customs authorities can take action against goods suspect infringing IPR under any customs procedure An IPR IT database is established to provide tools for customs risk management with the possibility to access list of companies and key products Specific risk-analysis modules for control of counterfeit and pirated goods arenrsquot developed and implemented There is no systematic in-house training to ensure expertise in the IPR field

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

19

13 Trade across border

This page shows summary of World Bank Doing Business 2010 data for Georgia The first table lists the overall Ease of Doing Business rank (out of 183 economies) and the rankings by each topic The rest of the tables summarize the key indicators for ―Trade across Border

Georgia

Region Eastern Europe amp Central Asia

Income category Lower middle income

Ease of Doing Business 2010 rank Doing Business 2009 rank Change in

rank

Doing

Business 11 16 +5

Starting a

Business 5 5 0

Dealing with

Construction

Permits

7 9 +2

Employing Workers

9 10 +1

Registering

Property 2 2 0

Getting Credit

30 27 -3

Protecting

Investors 41 38 -3

Paying 64 112 +48

20

Taxes

Trading

Across

Borders

30 85 +55

Enforcing

Contracts 41 42 +1

Closing a

Business 95 95 0

Trading Across Borders DB10 rank

30 DB09 rank

85 Change in rank

+55 The costs and procedures involved in importing and exporting a standardized shipment of goods are detailed under this topic Every official procedure involved is recorded - starting from the final contractual agreement between the two parties and ending with the delivery of the goods

Indicator Georgia Eastern Europe amp

Central Asia

OECD

Average

Documents to export (number) 4 65 43

Time to export (days) 10 268 105

Cost to export (US$ per container) 1270 15818 10897

Documents to import (number) 4 78 49

Time to import (days) 13 284 110

21

Cost to import (US$ per container) 1250 17735 11459

Trading Across Borders in Georgia

This section covers the procedural requirements for domestic businesses in Georgia to export and import a standardized cargo of goods by ocean transport Every official procedure for exporting and importing the goods is recorded along with the time and cost necessary for completion

The country data appearing on this page was collected as part of the Doing Business project which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 183 economies The most recent round of data collection for the project was completed in June 2009

The tables below list the procedures necessary to import and export a standardized cargo of goods The documents required to export and import the goods are also shown

Nature of Export Procedures Duration

(days)

US$

Cost

Documents preparation 4 255

Customs clearance and technical

control 2 30

Ports and terminal handling 2 235

Inland transportation and handling 2 750

Totals 10 1270

Nature of Import Procedures Duration US$

22

(days) Cost

Documents preparation 8 255

Customs clearance and technical

control 1 60

Ports and terminal handling 2 235

Inland transportation and handling 2 700

Totals 13 1250

Export documents Import documents

Bill of lading Bill of lading

Certificate of origin Certificate of origin

Commercial invoice Commercial invoice

Customs export declaration Customs import declaration

Export license Import license

Packing list Packing list

Technical standardhealth certificate Terminal handling receipts

22

(days) Cost

Documents preparation 8 255

Customs clearance and technical

control 1 60

Ports and terminal handling 2 235

Inland transportation and handling 2 700

Totals 13 1250

Export documents Import documents

Bill of lading Bill of lading

Certificate of origin Certificate of origin

Commercial invoice Commercial invoice

Customs export declaration Customs import declaration

Export license Import license

Packing list Packing list

Technical standardhealth certificate Terminal handling receipts