Study of Small and Medium Enterprises in Azerbaijan - IFC

9.3.3 Economically unjust tariffs create strong incentives to
incorrectly classify goods
Frequent misclassification (willful or negligent) of goods by entrepreneurs, as well
as customs officials, is another problem associated with imports. The substantial
differences among tariffs applied to similar/related goods may create incentives for
entrepreneurs to classify their goods so that the customs burden is less than it should
be. For example, there is significant variation in the import tariff rates for the IT and
telecommunication industries, which not only distorts the allocation of resources and
undermines growth, but also introduces a significant level of discretion for customs
officials to classify products. The tendency is to classify IT products as telecommunication
products, which are generally subject to a 15 percent tariff, while IT products
have a 3 percent tariff. Another serious problem is the tariff structure for IT products,
which encourages imports of finished products at the expense of components and
spare parts. For example, the duty for personal computers is 3 percent but 10 percent
for computer components, a significant disincentive for computer assembly businesses
to operate in Azerbaijan. This is one example substantiating the distortions
irrationally fixed tariffs may cause. In the light of these considerations, it is paramount
that Azerbaijan’s tariff policy be revisited and further improved.
9.3.4 Long list of documents add to the burden of importing
Currently, to consummate an import transaction, an entrepreneur is required to submit
14 documents, 6 out of which appear to be redundant. The number of documents can
be reduced to 8, leaving the italicized documents in plain text format in Box 9.9.
The documents indicated as redundant in Box 9.9 neither generate information of
particular relevance, nor provide the trader with a document that may assist their
cause. For instance, the certificate of origin is of relevance to customs authorities
only for statistical purposes, as long as imports are not subject to preferential tariff
treatment: it is in the interest of an importer to obtain it because otherwise he/she
will incur extra payments for duties 57 . However, according to the best international
practice, the number of documents must be limited to bill of landing, commercial
invoice, and customs import declaration.
57
World Bank 2008 Contestability of Domestic Markets.
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St u d y o f Sma l l a n d Me d i u m Ent e r p r i s es in Az e r b a i j a n