The Customs and Excise Department is primarily responsible for the collection of revenue on dutiable goods and the prevention of its evasion, the suppression of narcotics trafficking and abuse of narcotic drugs, the prevention and detection of smuggling, and the protection of intellectual property rights. It has an establishment of 5 137.

    The department also enforces legislation to protect consumer interests, safeguard and facilitate legitimate trade and industry, uphold Hong Kong's trading integrity and fulfil international obligations (See also Chapter 5).

Revenue Collection

The department is responsible for the collection of excise duties derived from dutiable commodities stipulated in the Dutiable Commodities Ordinance. These are alcoholic beverages, tobacco, hydrocarbon oil and other alcohol products (i.e. methyl alcohol and ethyl alcohol). During the year, the excise duties collected amounted to $6.64 billion, of which 54.5 per cent came from hydrocarbon oil, 33.3 per cent from tobacco, 12.16 per cent from alcoholic beverages and 0.04 per cent from other alcohol products, representing a decrease of 4.36 per cent over 2001.

    The department also assesses the taxable values of motor vehicles under the Motor Vehicles (First Registration Tax) Ordinance for the purpose of levying first registration tax. In 2002, the department registered a total of 50 motor traders and assessed the provisional taxable value on 44 778 vehicles.

Revenue Control

Dutiable commodities in Hong Kong are stored in warehouses licensed by the department after import or local manufacture. Removal of dutiable commodities is subject to a permit being issued by the department, and the commodities can only be released for local consumption upon payment of duty.

    Currently, the bonded warehouses for dutiable liquor and tobacco operate under the physical supervision of the department. Oil companies and breweries already operate without physical supervision. To introduce a more flexible business environment for the warehouse operators and to reduce the cost of control and compliance, the Government proposes to replace the physical supervision requirement with an open bond system, which is based on risk management strategies including stricter licensing criteria, random checking, documentary verification and post-transaction auditing. The proposal has the general support of the trade, and the necessary legislative proposals were introduced into the Legislative Council in January. In April, familiarisation programmes were organised to explain to warehouse staff the expected changes under the open bond system. Subject to passage of the legislative proposals, it is intended to put the open bond system into full operation in 2003.

Revenue Protection

The department continued its vigorous enforcement action against cigarette smuggling in 2002. Contraband cigarettes are commonly smuggled into Hong Kong from the Mainland, mainly by cross-boundary goods vehicles. Others are imported through sea cargoes from Asian countries. During the year, about 181 million sticks of cigarettes were seized, a decrease of 46.7 per cent compared with 2001.

    Marked oil (commonly known as 'red oil'), detreated marked oil and synthetic petrol continued to be used illegally as fuel for vehicles. To tackle this problem of illicit fuel, in addition to enforcement action taken at sea and land boundaries, sustained operations were mounted to eliminate illegal filling stations, illicit oil detreating plants and synthetic petrol manufactories. Surprise checks were also conducted to detect the use of illicit fuel in road vehicles.

    With amendments made to the Dutiable Commodities Ordinance in 2000, a number of measures to further suppress the illicit use of fuel have been in effect since July 28 that year. The penalty for use of marked oil as vehicular fuel was raised from $200,000 to $1,000,000. Repeat offenders are also subject to disqualification from driving. The presumption provision was expanded to the effect that fuel transferred to or from a vehicle's fuel tank at any location other than those licensed under the Dangerous Goods Ordinance is presumed to be dutiable. Following an amendment to the Dutiable Commodities Ordinance in February 2001, light diesel oil found in the fuel tank of a motor vehicle with a sulphur content in excess of that stipulated in the Air Pollution Control (Motor Vehicle Fuel) Regulation is presumed to be dutiable. The Air Pollution Control (Motor Vehicle Fuel) Regulation that came into effect on April 1, 2002, lowered the stipulated sulphur content to 0.005 per cent by weight.

    Resulting from the enhanced deterrent effect against offenders and the department's vigorous enforcement action, the number of illicit filling stations was reduced from 35 in 2001 to 27 in 2002. The department neutralised 27 illicit oil detreating plants and 13 synthetic petrol manufactories; 751 persons were arrested. Altogether, 2.14 million litres of various types of illicit fuel, valued at $14.22 million, were seized. The duty potential of the seized illicit fuel amounted to $7.83 million, an increase of 44 per cent compared with 2001.

Anti-narcotics Operations

The department continued to take vigorous enforcement action to prevent and suppress the unlawful manufacture, distribution and trafficking of dangerous drugs, and to trace, confiscate and recover proceeds accrued in illegal drug activities. It also enforces the Control of Chemicals Ordinance, which aims at preventing the diversion of chemicals for illicit manufacture of dangerous drugs and psychotropic substances.

    The Customs Drug Investigation Bureau is the department's major investigative arm in combating illicit drugs. The bureau's main functions are to conduct investigations and surveillance to combat illegal manufacture, trafficking or use of drugs. In addition, the department works closely with the Police Force and also various drug enforcement agencies in the Mainland and overseas in exchanging intelligence and arresting drug criminals.

    In 2002, the department dealt with 85 drug trafficking cases and broke up 20 drug distribution centres. Officers seized 12.4 kilograms of heroin, 384.4 kilograms of herbal cannabis, 7.6 kilograms of cocaine, 25.8 kilograms of methamphetamine ('ice'), 33.7 kilograms of ketamine, 29 703 tablets and 2.1 kilograms of MDMA ('ecstasy') and 42 774.5 tablets of other psychotropic drugs. A total of 765 persons were arrested for drug-related offences. Drug proceeds amounting to $3.14 million were restrained.

Boundary Control

In 2002, vehicular traffic movements through the three control points at Lok Ma Chau, Man Kam To and Sha Tau Kok increased by 9.6 per cent to 12 423 196 compared with 2001.

    To further enhance the Customs' capabilities in processing the ever increasing numbers of cross-boundary passengers and vehicles, the Lok Ma Chau Control Point Expansion Project Phase II was launched and is scheduled for completion in the third quarter of 2003. The project covers the expansion of the passenger terminal, improvement of the cargo examination facilities, reprovisioning of the existing vehicle processing kiosks, and the installation of two fixed X-ray vehicle inspection systems which will be commissioned in February 2003. In addition, the installation of an Automatic Vehicle Recognition System at the Lok Ma Chau, Ma Kam To and Sha Tau Kok Control Points commenced in June and is scheduled for completion by September 2003, for expediting the processing of vehicles.

    In order to cope with the increasing demand on passenger and vehicular traffic at the land boundary control points, the Government has extended the operating hours of the Lok Ma Chau and Lo Wu Control Points since December 2001. The operating hours of the southbound and northbound lanes for goods vehicles were also extended. The arrangement facilitated better flow of cross-boundary vehicles and passengers. A series of measures has also been introduced in phases at the control points to streamline the goods vehicles clearance procedures. As a result, the average clearance time for a laden goods vehicle has been reduced from 45 seconds to 33 seconds and that for an empty goods vehicle from 20 seconds to 16 seconds.

    To facilitate the smooth flow of air-land intermodal transhipment cargo from the Hong Kong International Airport to the Mainland, a one-stop customs clearance service has been provided since August 2000. Special and expeditious customs clearance arrangements have also been provided to facilitate the operation of the Marine Cargo Terminal at the airport for processing air-sea intermodal transhipment cargo to and from the Pearl River Delta in the Mainland since April 2001. The first cross-boundary ferry service for transit passengers between the Hong Kong International Airport and ports in the Pearl River Delta is scheduled to commence operation in the first quarter of 2003. Simplified clearance procedures will be put in place to expedite the passenger flow.

    The department has been preparing for the provision of customs services at the Container Terminal 9, being constructed on the south-eastern shore of Tsing Yi Island. Customs facilities and services will be ready when the first berth comes into operation, which is scheduled for 2003.

Anti-smuggling Operations

In 2002, the department detected 228 smuggling offences, arrested 284 persons and seized contraband goods worth $288 million. Smuggling between Hong Kong and the Mainland remained a cause for concern. The duty gradient leading to price differences between Hong Kong and the Mainland was still the main reason underlying the problem.

    Goods commonly smuggled to the Mainland included computers and accessories, electrical and electronic appliances, vehicles and vehicle spare parts, marked oil and edible oil. In 2002, two left-hand drive vehicles and 16 motorcycles were seized. Smuggling of electrical and electronic appliances to the Mainland was still rampant during the year. The total value of such goods seized increased from $30.52 million in 2001 to $38.72 million in 2002. Smuggling of computers and accessories recorded a downward trend and the total value of seizures decreased from $51.08 million in 2001 to $37.57 million in 2002. Containers, tractors and lorries were frequently used in syndicated smuggling activities with contraband concealed inside false compartments as well as within the tractor trailers. Smuggled goods were also found concealed in driving compartments and vehicle toolboxes.

    Cigarettes, narcotic drugs and counterfeit goods were the main items being smuggled into Hong Kong from the Mainland. Altogether, officers seized 83.8 million sticks of illicit cigarettes originating in the Mainland.

    The capability of the department in curbing smuggling by using cargo containers and lorries, especially those with false compartments, has been much enhanced since the procurement of two sets of a hi-tech Mobile X-ray Vehicle Scanning System in August 2001. This equipment has been deployed for use at the boundary control points and the container terminals to reinforce customs control. Two more sets of the Mobile X-ray Vehicle Scanning System will be procured to further enhance the means for combating smuggling.

    A Special Unit under the department's Ship Search and Cargo Command, comprising 19 customs officers, was established in February to step up action against smuggling by means of river trading vessels mainly from the Pearl River Delta. Officers conducted surprise checks at cargo handling basins located along the coastlines.

    The Customs continued to maintain close liaison with the Police Force and overseas law enforcement agencies in exchanging intelligence and this contributed considerably to the successful interdiction of smuggling activities. Enhanced cooperation with the Mainland authorities in exchanging information and mounting parallel operations at the land boundary crossing points continued to produce satisfactory results.

Training

All recruits to the Customs and Excise Department undergo basic training at the department's training school in Tai Lam Chung. Apart from induction training, the department provides local and overseas vocational training necessary for its staff to discharge their duties. During the year, staff received various types of in-house training, taking up 7 841 training places, while 116 staff underwent training either overseas or in the Mainland. The department also organised training courses for the Mainland customs administrations as part of cooperative efforts. In 2002, a total of 88 officers from these Mainland administrations received training in Hong Kong.

    In enhancing staff training and development, the department appointed in January a consultancy firm to conduct a study on the latest training and development needs of its customs officers. Based on the recommendations of the study, a Departmental Training Steering Committee was established to oversee the department's training policy to provide for the better development of its staff.

Information Technology

Since January, traders have been able to use electronic means in applying for dutiable commodities permits, a service that reduces processing time. During the year, an Information Systems Strategic Study on the department's IT infrastructure, and opportunities for further development over the next five years, was completed.

    Application within the department of the Government's Office Automation Programme also entered its final stage. By mid-2003, all staff will have access to the department's common databases and the electronic mail system, and communication between various departmental offices will be further improved.

Performance Pledges

The department's ninth set of performance pledges was published, together with the department's vision, mission and value statements. These reinforce the department's commitment to quality service. For better public accountability, the department regularly reviews the quality of its services with the four customer liaison groups connected with the air freight, sea freight, cross-boundary transport and dutiable commodities trades. A home page on the Internet provides comprehensive and updated departmental information to the public.