ISLAMABAD: Amid sluggish revenue collection performance, the audit machinery of the Federal Board of Revenue (FBR) is complaining about suppression of its audit functions due to massive shortage of staff and an unqualified work force, resulting in heavy revenue losses through misuse of Green Channel and electronic clearance of imported goods.

“Depriving the audit directorates of their capacity to act as strong deterrents against duty and tax evasion is a money making methodology for individuals of the customs side at the cost of the national exchequer that has been institutionalised over the past few years,” said a senior FBR official showing a series of protest letters from various audit directorates.

For example, the director general of Transit Trade Karachi has reported in one of the complaints that the volume of transit trade of yarn and fabrics has increased around 20 times in just six months, to 3,063 TEUs (twenty-foot equivalent unit) in July–December 2017 from 145 TEUs during the same period of 2016.

Situation has caused heavy revenue losses through misuse of Green Channel and electronic clearance of imported goods

“For us this is smuggling because apparently imported transit goods are destined for Afghanistan, but they are actually brought back into Pakistan. Textile industry across the border can hardly absorb such quantities,” the official said.

According to officials, there are nine directorates of customs audit under three directorates general of post-clearance audit, internal audit and intelligence. In theory, the three wings cross-check each other through their varying roles. The director general intelligence reports directly to the FBR chairman, but the two other directorates have to operate through a maze of bureaucracy and suffer in performance.

As the new chairman, when Dr Jahanzeb Khan recently asked senior customs and internal revenue service officers about revenue collection performance net of payable refunds, performance evaluation system and merit-based placement policy, he may not have expected the level of shortcomings of the audit function, according to the officials.

Great fear

The FBR’s three directorates of post-clearance audit and as many directorates of internal audit are theoretically a great fear and force against mis-declaration, under-valuation and under-assessment of imported goods as the detection of these irregularities in the post-clearance audit is a threat looming on importers and clearing agents.

The directorates of internal audit also help bring operational and financial discipline in the customs collectorates by identifying operational loopholes and financial irregularities.

Over the past few years, the FBR top management did not give its audit directorates an access to the database of clearances made through the electronic goods clearance system and Green Channel, setting the unscrupulous elements free to indulge in massive misuse of the two systems causing heavy and preventable revenue losses over a protracted period of time.

The FBR has also kept these directorates perpetually human resource- starved to undermine their audit capability. For example, the three internal audit directorates of Lahore, Karachi and Islamabad have a sanctioned strength of 121 audit staff, but have only 53 working, showing a shortage of 56 per cent or 68 persons. This is despite the fact that even the sanctioned strength is not enough to confront the massive revenue evasion challenge. Likewise, the post-clearance audit wing has only 23 staffers against the sanctioned strength of 38 and the actual requirement of 66.

The audit directorates have been asking the FBR to match the quantity and quality of their work force with their workload. They have also been asking for access to the electronic goods clearance system and Green Channel to fight their misuses and revenue losses suffered in electronic clearances of imported goods.

Ironically, the board has remained indifferent to these requests, making its audit directorates dysfunctional and reducing these important organisations to mere parking places for officers.

Suppression of audit function

The consequences of suppression of audit function are visible everywhere. Delinquent importers and clearing agents are indulging in self-assessment of imported goods, paying duty and taxes of their choice with impunity.

Misuses of Green Channel are touching unprecedented heights. Import business has become so attractive as to cause influx of unnecessary imports and widening trade deficit.

Many customs collectors have become alien to operational efficiency and financial discipline. Tax collectors and payers are mercilessly plundering the national exchequer and damaging the national economy.

The FBR’s three directorates of customs intelligence have been the main beneficiary of a dysfunctional audit. These directorates are the only organisations left to question the propriety of declarations and assessments of imported goods.

The level of misuses of Green Channel and corruption of customs intelligence to keep hand off the containers fraudulently passed through Green Channel can be estimated from the fact that the DG customs intelligence admitted in one of his letters to the FBR the merciless misuses of Green Channel during his tenure, but practically reported only 21 cases.

Published in Dawn, September 17th, 2018