Under-invoicing in imports
Under-invoicing is a major source of customs duty leakage in imports in the absence of effective measures to curb or minimise this malpractice.
Owing to growing mis-declaration of commercial imports, it was proposed four years back to link the Pakistan Customs with China Customs. Some initial work was undertaken by the customs department but nothing happened.
If China-Pakistan trade data provided by International Trade Centre, Geneva are compared to figures of State Bank of Pakistan, there is big discrepancy in these two. This leads one to suspect that under-invoicing has crossed Rs300 billion in 2010 on imports from China alone.
The major reasons for under-voicing are attributed to the defective software in use by the customs. The department is unable to apply risk parameters or price checking to assess the percentage of risk involved while clearing a consignment. A deeper study shows that the actual problem starts at the clearance stage where these defective systems are unable to check the malpractices due to very weak risk management parameters. Moreover, customs officials overrule the suspect under-invoiced and mis-declared entries in favour of the importer.
The Web-based PaCCS is handling over 80 per cent FCL cargo at Karachi International Container Terminal, Pakistan International Container Terminal and Qasim International Container Terminal— all based at Karachi——, but the total customs duty received at all the three terminals by MCC Karachi is at 35 per cent of total customs revenue.
One-custom system (developed by PRAL) is in operation for customs clearance at other customs stations in the country. The FBR needs to have forensic audit to fix responsibility for risk management system and defective and incomplete systems causing huge losses in hundreds of billions of rupees every year to the exchequer.
The GDP-customs duty collection ratio went down to 1.13 per cent in 2010 from 1.72 per cent in 2006, its lowest in the region. The System (Technology and Processes) needs to be improved. It is important to secure international trade borders, and facilitate Afghan Transit Trade and ISAF under arrangement to avoid negative effect on the economy. There is a need to put in place a foolproof transit trade system in place like that of Jordan.
Imports have now increased to Rs3000 billion from Rs1300 billion in 2005, but customs duty collection remains between Rs130-150 billion range— it is only 5.3 per cent of total imports whereas the duty slab has been increased from 25 to 35 per cent in the last two years. There is less than 10 per cent impact on customs duty collection of Pakistan’s FTAs, PTAs and SAFTA agreements with Malaysia, India, Sri Lanka, China and Saarc countries.
Automated clearing systems: Paperless customs clearing system (Technology and processes) is the main problem and biggest fault line in the economy. It has promoted low cost imports and dumping of imported goods due to web-based examination free system where goods could be released without examination, with a click.
Dubai has become No. 1 import partner for Pakistan and China has gone to No. 2 position. Most of containers are re-routed from Dubai to facilitate under invoicing and mis-declaration. Imports from India has been increased many fold for containerised cargo.
Import-based facilitation policy has caused dumping of goods, damaged local industry and resulted in official trade deficit of over $10 billion. With under-invoicing factor, the actual trade deficit goes up to an estimated over $15 billion per year Afghan Transit Trade: GIS based ‘Transit Monitoring and Facilitation System’ is available and suits our specific conditions/ operations related to ATT. WCO International Bank Guarantee model is working successfully in several countries that could resolve the issue of customs duty payment for Afghan Transit Trade.
Following steps are necessary to improve duty collection: Outsourcing to foreign company be immediately stopped. Only one system be used for customs clearance, instead of three systems operating at various stations..
The FBR experts should visit Hong Kong, Korea, Japan, Malaysia, Thailand and Singapore to review e-customs processes and technology for its adoption in Pakistan. The Pakistan Customs should be directly linked to UAE, China, India, Japan and Afgan customs to detect any change made in the documents by importer.
Scanning of imported containers be done as in the case of exports. Risk Management Criteria may be reviewed and strictly implemented through prescribed system, ensuring that they are not overruled by the custom officers; barring in exceptional cases. Audit trail be maintained for all transactions.