Robert Go, Jakarta – Mr T. Gumolo, who runs a diving outfit in North Sulawesi's famous Bunaken National Park, is supposed to pay around $2,000 in import duties for the thousands of dollars worth of scuba gear and components that he buys each year from abroad.

Before receiving each shipment, however, he calls up and alerts a "friend" in the Manado Customs Service offices, who can then expedite the process and help him avoid paying his full tax burden. The businessman said: "It's a win-win solution. I get something, and my friend gets something, too. This is the way it's done here."

Indeed, thousands of entrepreneurs across Indonesia make it a habit to cheat the government – out of a sum that some experts said reaches anywhere between US$2 billion and US$5 billion yearly – by under-invoicing or outright smuggling of imported consignments.

Up to 75 per cent of television sets, radios, refrigerators, cellular phones, handheld computers or laptops sold here, even in high-class malls, are imported without paying import duty and other taxes, according to Mr Lee Kang Hyun, a business executive.

The Korean national, who is also chairman of Indonesia's electronics producers association Gabel, explained: "Part of the problem is the high taxes on luxury items. But even if those were lowered, corruption is so pervasive within the Customs offices that smuggling and under-invoicing would still be rampant."

Another example of smuggling and under-invoicing activities is seen in the textile industry, where more than 480 million pieces of used garment and thousands of bolts of fresh textiles get imported illegally and then sold cheaply in local markets.

Private consumers benefit from this system. They pay lower prices and can select from a wide range of quality, branded goods that were manufactured abroad. But Indonesia loses revenue, and experts also argued that the influx of cheap imports also puts pressure on domestic industries, which are already hit by higher production costs and the lingering effects of the 1997-98 economic crisis.

Over the past two years, hundreds of local firms working in textile, shoe, electronics and other labour-intensive industries have closed doors complaining that they could not compete with the lower prices of illegal imports.

Mr M. Ikhsan of the prestigious Institute of Social and Economic Research at the University of Indonesia, concurred with those complaints, saying: "The government's revenue loss is a small problem, comparatively speaking. The bigger concern is the damage it does to domestic producers, who provide jobs and income to millions of workers. If these suffer and close down, then the economy is in trouble."

The solution suggested by experts is a thorough clean-up of the Customs service, which has consistently been ranked as one of Indonesia's most corrupt agencies. And many businessmen want to give Mr Eddy Abdurrahman, the country's new director-general of Customs and excise, some time to act and reform his agency.

But even Mr Eddy himself is not so sure of his ability to crack down on his errant subordinates, and said following his appointment last week: "I cannot totally eliminate all the corruption that has infested the directorate. It is an impossible job."