The Federal Board of Revenue is identifying several import items that are prone to under-invoicing in a move to assess their actual value for levying customs duty and allied taxes.

Wrong declarations and under-invoicing result in a significant loss of revenue.

The Board’s exercise is driven by the dip in customs duty collection over the first four months of this fiscal year. However, checking under-invoicing will also help address complaints of manufacturers whose products turn uncompetitive in the domestic market because of cheaper, partially duty- and tax-evaded imports.

FBR Chairman Tariq Bajwa says that products at high risk of being under-invoiced are being identified. The Board, he said, has already given a presentation to Finance Minister Ishaq Dar for formal approval of the FBR’s proposal.

The declaration of low value by importers for assessment of duty and taxes results in a huge revenue loss to the national exchequer. This not only helps importers save customs duty, but also 17 per cent sales tax that is slapped on the duty paid value, and the six per cent advance income tax that is paid on the sales tax-paid value of goods.

Under-invoicing is rampant because the customs department has yet to issue a ruling for bringing the maximum number of products under its ambit across the country. The ruling can bring uniformity for clearance of goods at all ports and minimise chances of tax evasion.

In the absence of such a ruling, it is at the discretion of customs officers to either accept the importer’s declared value as it is, or to do the same of their own choice. In both cases, the involvement of customs officials in corruption cannot be ruled out.

This situation suggests that the FBR can bring the ruling on values of under-invoiced products. The ruling can be issued under section 20A of the Customs Act, but this would need the government’s commitment to generate more revenue. The rulings will help the customs department create a reference book of values for all products.

While, for the customs department, the increase in the value of imports is a matter of raising revenue; for the industrialists, cheaper under-invoiced goods are equally a serious issue. These goods are crowding out domestically manufactured goods from the domestic market. This menace is believed to be one of the reasons for closure of local industries, which has left thousands workers jobless.

The importer disposes his stock at under-invoiced landed cost, but the real retail price of that item is much higher than the under-invoiced cost. This works out to a competitive advantage for the importer of a commodity, and to the detriment of the locally manufactured product.

Local auto manufacturers have raised this issue time and again, but no efforts have been made by the government to tackle it.

On an individual basis, some local manufacturers have approached the National Tariff Commission for blocking products dumped in the domestic market. During 2002- 2009, protection was provided to local manufacturers of only 23 products against cheaper imports.

In the last five years, no other case was finalised for tariff protection because of the cumbersome procedures and bureaucratic red tape.

However, some customs officials believe that increasing the value of imported products for duties and taxes may make these goods attractive for smuggling. The usual channel that has been used for dumping smuggled goods into the domestic market is the Afghan Transit Trade.

Much of the goods imported under the transit trade, either through Iranian or Pakistani ports, ultimately land in the Bara market of Peshawar.

Tackling under-invoicing does not appear to be a simple issue. There is a need to carefully study it and then come up with an approach to enforce the true valuation of imported goods. The FBR will have to fine tune its policy of value assessment while keeping in view the constant global price fluctuations, and also improve its governance accordingly.

And to fully implement its trade-defensive laws like anti-dumping and countervailing duties etc., and to provide a quick remedy to the domestic industry against cheap imports, the tariff commission needs to be restructured.