Pakistan losing $2.63b revenue a year due to smuggling

FBR conducts study of 11 goods, buries report after involvement of many govt officials

ISLAMABAD:

Pakistan is losing a staggering $2.63 billion worth of revenue a year, due to smuggling of just 11 goods that are making their way through porous borders and, more alarmingly, through high sea and containerised cargo with full support of the state machinery, reveals a highly confidential official report.

The losses were calculated by aggregating numerous customs duties and state taxes as were applicable at the time of the study i.e. last year.



The country’s first ever comprehensive report has estimated the value of these 11 goods at $9.1 billion. The revenue lost in the form of duties and taxes on smuggled goods could be far higher than $2.63 billion or Rs276 billion, if the scope of the study is widened to all the smuggled goods.

The amount is higher than the additional taxes government has levied in July last year through its second budget.

The study took into account the impact of smuggling high-speed diesel, vehicles, tyres, tea, auto parts, mobile phones, garments, cigarettes, plastic, television sets and steel sheets, on revenues, industrial production, investment and employment.

The Federal Board of Revenue (FBR) commissioned the study titled, ‘Ascertain the Market Demand of Goods Prone to Smuggling -Establishing the Volume of Smuggling’ but later on termed it ‘strictly confidential’.

The lead investigator for the report was Tariq Huda, the Collector of Customs Preventive, Karachi, who completed the work in May last year.

The FBR top brass buried the report instead of taking any action as the findings suggested that the massive scale of smuggling was not possible without active involvement of many high profile government functionaries.

At the time of the study, Nisar Mohammad Khan was Member Customs of FBR and in November last year he was promoted to the post of FBR chairman.

The report says, “Considering the border as the primary source of smuggled would be a devastating mistake … the goods are coming in from multiple sources including the high sea and in containerised cargo with officials fully aware and involved in their transport”.

Curbing smuggling through sea is the responsibility of Maritime Security Agency or the Coast Guards that have also failed to perform their duties, showed the findings.

“The border areas are almost entirely manned by the Frontier Constabulary (FC) with no checks on the misuse of Customs Powers delegated to them”, it noted.

It did say that a large quantity of the smuggling was due to Afghan Transit Trade Agreement (ATTA) cargo.



It also underlined that the need for “enforcement remains the biggest policy option Pakistan Customs needs to pursue” to curb the smuggling.

By curbing smuggling, the country can increase its tax-to-GDP ratio by another 3.9% to 15% within a year. Compared to India’s smuggling to GDP ratio of only 0.43% and Bangladesh’s 0.04%, Pakistan’s ratio is incredulously high, largely owing to involvement of the FBR officials, FC, Coast Guards and Maritime Agency.

“Majority of the foreign investment has left the country and more is leaving, as they cannot compete with the profit margins, which smuggled goods generate for those who are involved”, lamented the study.

The study notes that reducing tariffs to curb smuggling has not worked thus far; it has rather had a detrimental effect on the domestic industry, which would have to compete with even cheaper imports.

Top smuggled goods

Out of $2.63 billion losses, the country sustained $1.1 billion losses due to smuggling of mobile phones. The estimated value of smuggled phones was $4.4 billion and the smuggled phones met 59% of the demand.

The $2.7 billion smuggled diesel was the second item that caused $874 million losses, as the country met 33% of its total demand through smuggled diesel. The losses would go even higher for the current year as the government is charging an abnormally high rate of 51% General Sales Tax on diesel.

Smuggled plastics caused $222 million losses and capture 11% of the market demand. The smuggled auto parts caused $186 million losses, capturing 57% of the market. The smuggled vehicles caused $175 million losses and captured 12% of the market. The smuggled tyres caused $118.5 million losses, meeting 59% of the market demand.



The smuggled steel sheets got hold of 10% of the market and caused $112.6 million losses. 59% of the market needs are met by smuggled tea, causing $77 million losses. Only 3% of the market needs are met from smuggled cigarettes, causing $27 million losses.

Similarly, the smuggled television sets have captured 57% of the market, causing $9 million losses while smuggled garment products have captured 17% of the market, causing $2.5 million revenue losses. 

Published in The Express Tribune, January 22^nd,  2016.

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