The Senate standing committee on Commerce and Textile Industry observed that under-invoicing and undervaluation of IT equipment import is taking place, which, coupled with smuggling, is one of the major reasons for de-industrialization and revenue loss to the national exchequer.
The parliamentary panel met with Mirza Mohammad Afridi in the chair, on Thursday, where the FBR admitted 17 importers were found involved in misdeclaration and under-invoicing in the IT equipment’s imports. The Federal Board of Revenue (FBR) revealed that 46 percent of under-invoicing was observed during 2015 to 2019. The progress of audit of new IT products revealed under-invoicing of $5 million in supplier value of $11 million of a brand.
The Directorate is in the process of filing a reference application before Special Judge (Customs, Taxation & Anti-Smuggling) Karachi to authorize Anti-Money Laundering proceedings in terms of sections 16(1) and 8(1) of the Anti-Money laundering Act 2010 in the light of observation being instituted by the Directorate of PCA Karachi on the commission of predicate offense of misdeclaration in terms of Section 32 and 32A of the Customs Act 1969.
The FBR officials informed that most of the importers were using third parties (shell/cover-up companies) to make imports. However, two importers including M/s Megaplus Islamabad and M/s Unique Technologies were directly making imports from original equipment manufacturers (OEMs).
The OEMs namely M/s Dell Global BV Singapore and M/s HP Singapore were approached for verification of purchase invoices of various importers which had been submitted to customs at the time of imports. Five verification letters were received from both the OEMs wherein forgery/suppression of value were confiscated in 1017 invoices pertaining to the two importers.
A letter was written to Consul General of Pakistan in Singapore for approaching OEMs to confirm the country and channel through which the payment was received from said two importers against said 1,017 invoices. The State Bank of Pakistan has also been approached to confirm the total quantum of payments transferred by said two importers out of Pakistan and details of respective banks.
Directorate General of Customs Valuation Karachi informed the committee that earlier there was no valuation ruling or advice for assessment of laptops and desktops. Laptop, desktop importers first go to Dubai, to change the invoices and then come to Pakistan will less value.
However, now list prices of Dell, HP and Lenovo obtained from their authorized distributors and circulated to clearance collectorates for assessment purposes on December 17, 2019.
After an assessment, the valuation of laptops increased. A specific brand of laptop has a value of $252 in 2018-19 and $507 in 2019-20. PC’s value was $295 in 2018-19, now $356 witnessing 46% under-invoicing from 2015 to 2019, customs officials added. ”We are now looking at the banking channels to see how the money went out,” they added.
Afridi said that under-invoicing is a big issue and the committee is taking this matter seriously and there is a need for a comprehensive strategy to prevent under-invoicing. Faraz said that due to under-invoicing, the national exchequer and local industries are suffering immensely and it was necessary to adopt a comprehensive strategy.
Customs officials told the committee that the valuation system for importing IT products was not proper, but now a system has been devised for this. Authorities said that when a company imports IT products, especially computers, its receipts were tampered with and the direct importers were harmed.
Member Customs Jawad Agha said that there is on average 10 percent tax rate on IT products in Pakistan which is not very high but unfortunately companies have managed to change the invoices.
FBR has identified over $5 million worth of under-invoicing in IT product imports.
In response to Senator Dilawar Khan’s question, the Director-General Valuation said that there is room for improvement in PRAL. Dilawar Khan said an external audit of PRAL is necessary as it is receiving a lot of complaints against it. The committee directed that by March 15, the issue of under-invoicing should be briefed in detail about progress.
Faraz suggested that the invoice be conditioned on the product with the manufactures invoice which FBR officials said that this aspect needs to be looked at in detail. The committee gave a month’s time to FBR for consideration of the proposal.
The committee recommended the immediate deployment of the chairman of the Export Processing Zone Authority, saying that the authority would support industrial development and foreign exchange and investment. This is a vital platform to provide a better environment in the country and it needs to be made more efficient.
The meeting of the committee was attended by Senate Senator Syed Shibley Faraz, Senators Dilawar Khan, Ghaus Mohammad Niazi, Nuzhat Sadiq, Attaur Rahman and Zeeshan Khanzada, as well as senior officials of the Ministry and FBR and related agencies.