Reforming the Customs department

The Pakistan Customs Service is an attached department of the Federal Board of Revenue (FBR) responsible for the enforcement of Pakistan’s trade policy. It is expected to levy tariff on the undesired imports, facilitate exports and stop smuggling into and out of the country. In addition to the above, it collects sales tax, federal excise duty and income tax as a withholding agent.

In the wake of the current government’s resolve to revamp the revenue collection system in Pakistan, an appraisal of the Customs side of the FBR is mandatory. An attempt is, therefore, made to highlight some salient features of the service in the following paragraphs.

Customs Pool: This department has established the Customs pool which is funded from the money collected from customers over and above the transaction cost. The fund collected is made pool fund to be used for the welfare of the employees of the department. The question arises is: If the amount collected over and above the transaction cost is coined corruption in other departments then why is it permissible in the Customs department?

Appeasement function: Unfortunately, the state of Pakistan utilises the services of the Customs department as a revenue collection agency like the Inland Revenue department. The Customs officials in order to meet the revenue targets assess the value of assets on the higher sides due to which their value of assets becomes high in the accounts of the corporate taxpayers by paying nominal duties and taxes. The same value is used by the taxpayers for claiming high expenses and depreciation, enabling the taxpayer to save tax to be levied at the rate of thirty per cent. This policy of the government in general and the Customs department in particular is responsible for the tax gap.



Anti-smuggling: This is one of the primary duties of the Customs department, however very little effort is witnessed on this account. This is primarily due to the lack of required enforcement paraphernalia and the lack of proper strategy as well as the will of the movers and shakers of the department. One of its officers had to embrace martyrdom due to lack of will on the part of the department to stop smuggling. The shops in Hayatabad markets, Nowshera, Rawalpindi, Lahore, Quetta and Karachi are full of smuggled goods and non-customs paid vehicles — something that speaks volumes of the incompetence and corruption of the Customs department.

Commerce policy: In the modern world, trade policy is framed by the Commerce department for balance of trade and that policy is enforced through the Customs department in the shape of zero rating of exports, levy of heavy duties and taxes on unwanted imports, anti-dumping duties etc. Unfortunately, the Customs department in Pakistan is made part of the FBR instead of an attached department of the Ministry of Commerce due to which revenue is not collected at the optimum level and results in negative balance of trade with all countries.

In short, in order to achieve positive trade balance, the Customs department needs to be placed under the Ministry of Commerce and be allowed to act as a withholding agent like other departments to collect taxes. The future of new Pakistan lies in reforms, including those in the Customs department as well.

Published in The Express Tribune, July 24^th, 2019.

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