12.
Head 1 - Duties. Subhead 050. Imported tobacco The Dutiable Commodities Ordinance provides for the refund of duty, known as drawback, on duty-paid tobacco which is used in the manufacture of cigarettes exported from Hong Kong. The Dutiable Commodities Regulations stipulate that the amount of drawback shall in no case exceed the duty paid on the tobacco which is assessed on the weight of the tobacco. Drawback totalling $983 million was paid on exported cigarettes in 1984-85. In order to satisfy himself that the drawback does not exceed the duty paid, the Commissioner of Customs and Excise has arrangements with the Government Chemist for the declared weights of tobacco in export consignments to be checked on a sample basis, samples being taken from every export consignment. Should the actual weight in the sample fall short of the declared weight then the declared weight of that entire consignment will be adjusted for the purpose of calculating the drawback. The procedures require the Government Chemist to carry out routine checks to verify the gross weight of the cigarettes in all samples but in order to ensure that the tobacco weight is not overstated by the understatement of the non-tobacco components, such as paper and filter tips, samples from certain export consignments are selected for detailed analysis in accordance with laid down criteria.
13.
In a recent audit review of the drawback payments made by the Commissioner of Customs and Excise I have drawn attention to certain weaknesses in the system that may have resulted in the overpayment of drawback. Firstly, the criteria for selecting the samples for detailed analysis were not set out in a consolidated form so as to provide a ready reference for the Customs and Excise Department staff. Consequently, some of the detailed analysis checks were found to have been overlooked. Secondly, no action was taken to increase the number of detailed analysis checks on those manufacturers who were found to persistently understate the weight of the non-tobacco components, nor to warn those concerned. For example, I noted during my review two cases of a manufacturer persistently understating the weights of paper and filter tips in cigarette export consignments which caused, in my estimation, overpayments of drawback amounting to $3 million in 1984-85. As a result of these weaknesses I was not satisfied that the system adequately ensured that the drawback on exported cigarettes did not exceed the duty paid.
14.
The Commissioner of Customs and Excise has agreed to issue to his staff a set of consolidated guidelines on selecting samples for detailed analysis together with simplified and improved procedures for checking them but has explained that it is difficult to increase the number of samples selected for detailed analysis as suggested, because the Government Chemist does not have sufficient capacity in his laboratory.