Misuse of authority: Country’s undetected digital mafia

There is a easy way out of paying duties and govt revenue

ISLAMABAD:

Ever heard of a Pakistani mafia that plays with digits of government classifications for allowing illegal goods import for ‘cuts’? This mafia is entrenched in Pakistan Customs. It can be branded as ‘classification’ mafia too, as they manipulate loopholes in the Pakistan Customs tariff Heads (HS codes) under which duties and taxes of import item goods are assessed.

These codes also classify the banned or sensitive items which are prohibited or placed on the high-duty and tax list.

Sometime one wonders looking at the stream of vehicles plying on Pakistani roads, especially the shining and luxury ones, as to how these were imported and purchased in such big numbers.

Obviously, there cannot be such a boom of import without duties and taxes being slashed—not by the government in the Customs tariff but by officials that are deputed to clear the imported vehicles.

The simple trick they apply is: change the HS code under which heavy taxes and duties are applicable.

For instance, if the vehicle, or for that matter an electronics item, is specified under a certain tariff head as ‘banned’, or ‘sensitive’, the Customs official would be pleased to register it as an item attracting taxes or duties under another head, for slashing the chargeable amounts.

And such heads are available in the tariff in their plenty. The government obviously lacks proper expertise to completely sweep away the chances of such manipulation.

It is the Finance Division, the Commerce Division, the Industries Division and the Customs that collude to leave the embedded in the tariff-head lists to perpetrate a space for the corrupt practices.

The other government departments or the political people running the power show do not comprehend the implications of HS codes. Or else, if they do, they collude with these state organisations to take advantage of the voids left for mis-interpretation of the tariff specifications.

The under-taxed vehicles, electronic goods, machinery, parts and accessories that glut the Pakistani market are thanks to these skillful operators in the Customs and the mother departments which are supposed to be plugging in these loopholes.

A former FBR chairman revealed to the media in 1998 that the Customs was responsible for evasion of import duties and taxes of the amount equal to almost 80% of the money that should land in the government exchequer.

He might have been exaggerating it, but my guess is that this evaded amount, on which at least 15-20% is paid in bribes to the Customs officials, could not be any less than 40% of the total revenues supposed to be deposited in the national coffers.

How manipulation takes place

Impact of this tendency to manipulate the Customs HS codes is greatly on electric goods, vehicles and vehicle-mounted machinery on the FBR site. Take a look on these tariff pages and you find out groups of vehicles and machinery, electronic goods and accessories falling under specific HS codes as well as under the unspecified indication articulated as ‘others’.

Here is a space for manipulation by the Customs officials deputed for import clearance. They register an item from these groups for duty and tax assessment in clear disregard to the producing company’s specification of the consignment on the ‘Goods Declaration’ (GD) papers.

If the duty and taxes are to be charged on one group item (as per the GD) at higher rates, the classification is changed to charge lesser amount of duties and taxes. This trick helps the importer to pay far less than the payable amount and the money thus saved is split into two: 15-20% to the officials; the rest retained by the importer.

This is one trick the Customs officials apply to favour the importer for their cuts. The other two tricks are: allowing machinery that can be converted into vehicles; and, allowing certain imports of companies that are not supposed to be importing them. The first (machinery) group is that which relates to agriculture and construction sectors: like dumpers and mixers etc.

Automobile dealers are allowed to import thousands of cars every year which offers them phenomenal profits. Customs allows them under a policy of financial turpitude to flood the Pakistani market via overseas Pakistanis’ export rights which are inflated by manipulating the HS Codes. This mafia digitally misapplies the HS codes to eternalise the crime.

The writer has worked with major newspapers and specialises in analysis of public finance and geo-economics of terrorism

Published in The Express Tribune, July 27^th,  2015.

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