How to get rich while saving billions in taxes in Pakistan
I’ve read a lot on how to get rich in a short span of time if you are living in a developing country like Pakistan. But all the writers of such articles have missed the easiest method of all – collude with the customs to cheat the government.
One way of doing this is what an enterprising importer did recently. In this case alone, the company must have cheated the government of at least Rs100 million by importing 80,000 cell phones (which were recovered from the bungalow) without any payment of duty and taxes.
In another raid, the authorities seized a container (belonging to the same importer) with over 63,000 mobile phones and over 500 tablets worth Rs285 million in the market. The amount of tax evasion in this case alone was Rs104 million. Since the company imported 800 such containers in the past few years without any payment of duty and taxes, it deprived the government of at least Rs80 billion, and has probably put most of the money in foreign bank accounts.
It is important to note that all of this could not have happened without the involvement of customs officials. A couple of years ago, my neighbour returned to Pakistan after spending some years in Dubai. All his baggage (including brand new refrigerator, deep freezer and the latest LED TV) was in a container. He only had to pay a couple of thousand rupees as custom duty. Furthermore, the container was exempted from being examined by customs officials, for which he had to give Rs25,000 under the table to the customs personnel who were in-charge of conducting a detailed inspection of his container as per practice.
So why is it mind-boggling when we hear of middle-ranked customs personnel owning large bungalows in posh localities like Karachi’s DHA?
But it does not stop there.
During my 50 years of dealing with customs, I have seen metal plates and rubber tires being brought into the country under the guise of being declared as scrap. The most common trick is under-voicing, where the price of an imported item is declared at a much lesser value in order save on duty and taxes (sometimes the declared price is 10%-20% of the actual price).
Often, however, the name of the item is changed to that on which the duty is less significant. Toys, for instance, are subjected to 10%-20% duty, but the unscrupulous importer will declare toys as, for example, used Cathode ray tube (CRT) monitors, on which the duty is only 2%. So if the container door is opened, which is usually not the case, the customs examiner will see the monitors but will not see the toys hidden behind the monitors in the back of the container. Even if he does, he can always be paid off. This could have happened in the case of cell phones, which were declared as LED lights.
Then there is smuggling. Karkhano Bazaar in Peshawar, for instance, has about 5,000 shops, all selling smuggled goods that have been imported without appropriate or any payment of custom duty and other taxes.
Now one doesn’t require a doctorate in economics to calculate the loss to the exchequer by the shop owners of Karkhano Bazaar. Even if the sales of each shop is Rs10,000 a day (a very conservative estimate), Rs5 billion every year can and should be collected as sales tax from the thousands of shops in Karkhano Bazaar. More than this amount can be recovered from shopping malls throughout the country where smuggled items are openly sold.
Unfortunately, instead of recovering due taxes from smugglers and those indulging in under-invoicing and misdeclaration, the government prefers to heavily tax the salaried class and other honest taxpayers.
When a country’s leaders are themselves corrupt, it is natural that the government would encourage corruption. All governments in Pakistan (including those of PPP and PML-N) have encouraged corruption and accumulation of black money. Every couple of years, a tax amnesty scheme is announced to enable black money holders to whiten their illegally-earned wealth. The most recent amnesty enabled property speculators to get illegally-earned Rs290 billion whitened, by paying only Rs877 million.
Such amnesties are grossly unfair to honest taxpayers comprising mainly of the salaried or middle class, who have to pay up to 35% of their earnings every year as income tax to the government, and this excludes sales tax. But the government goes on penalising honest citizens and encouraging tax thieves by such measures.
The most recent measure is the imposition of regulatory duties on imports of many items. The government believes it will be able to collect Rs40 billion through this measure. Unfortunately, such steps have failed repeatedly in the past, and I doubt if even Rs4 billion will be accumulated from this measure. The reason, of course, is that smuggling, under-invoicing and misdeclaration will increase substantially and we’ll be back to square one, as corruption is too deep-rooted in our system.
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