KUALA LUMPUR: Bank Negara Malaysia (BNM) expects the trade mispricing issue to be mitigated with the introduction of Goods and Services Tax (GST). GST requires reporting of value-added at various stages of production.
The central bank had on Friday said the Customs Department had taken action against entities and individuals evading customs duties especially in cases of under- and over-invoicing of exports and imports of goods, as well as phantom shipments and other falsification of the value or quantity of shipments.
Tighter monitoring and surveillance at various entry and exit points were already in place, including closed-circuit televisions and scanners, it said.
BNM said all travellers, including Malaysian residents and non-residents, had to declare to the Customs if they were carrying into or out of Malaysia cash exceeding US$10,000 or its equivalent in ringgit and in foreign currency.
BNM had issued a statement on measures to curtail unrecorded financial flows following a recent report by an external non-governmental organisation (NGO).
To recap, the NGO report raised the issue of substantial illicit financial outflows from developing economies.
However, BNM said the estimates highlighted in the NGO's reports were "unrecorded financial flows", which were not necessarily synonymous with "illicit financial flows".
The report estimated 80% of the unrecorded financial outflows in Malaysia amounting to US$227.1bil from 2001-2010 were due to trade mispricing.
BNM said unrecorded financial flows were derived by comparing import and export data between countries also arose due to data discrepancies and the varying conventions used to compile trade statistics among countries.
This included time lag, variations in valuation and exclusion of certain types of goods. The situation was further complicated by the treatment of goods that are exported via re-export hubs.
The central explained that exports by Malaysia to a specific trading partner might for example not give rise to a similar number recorded as total imports from Malaysia by that country. This discrepancy arose as the imports were recorded based on country of origin that also included those exports that are via other countries.
"After taking into account Malaysia's trade that is exported via Singapore and Hong Kong (re-export hubs), the estimate of trade mispricing between Malaysia and its top 10 trading partners were reduced significantly by about 70%. Since the estimates in the report of trade mispricing do not take into consideration such discrepancies in trade statistics, the estimates of illicit flows are overstated," it said.
The NGO report also estimated 20% of illicit outflows were accounted for by unrecorded transfer of proceeds via informal channels that was captured by the Errors and Omissions (E&O) of the Balance of Payments (BoP) of the country.
"It should be noted that not the entire E&O figure is attributable to illicit activities, as it also includes genuine statistical errors from the compilation of statistics of external trade and cross-border financial transactions," BNM pointed out.
The central bank said since Malaysia is a very open economy with total trade in goods and services amounting to an average of 192% of GDP during this period, "such discrepancies are bound to be large in absolute amount".
"It is recognised, however, that a portion of the E&O could arise from the transfer of funds obtained from illegal activities, organised crime and tax and custom duties evasion. Importantly, the E&O has averaged at 2% of total trade, which is well below the 5% benchmark threshold prescribed by the International Monetary Fund. These ratios have also been on a moderating trend since 2010," it said.