The Federal Board of Revenue (FBR) has not included the impact of smuggling on customs duty collection while finalizing the customs duty gap of Rs. 358 billion.
According to the FBR’s report on tax gap analysis for 2022, the FBR has analyzed data from 60 countries for calculating a customs duty gap of Rs. 358 billion.
The report revealed that the FBR has estimated the customs duty (CD) gap of Rs. 40 billion which is approximately 11 percent of the collectible import duty. As discussed in the methodology, the FBR has calculated the CD gap for 60 countries.
The total CD collection was Rs. 318 billion from these import partners whereas the import gap suggests that our CD collectible was Rs. 358 billion. The smuggling effect is not included in the CD collectible due to the non-availability of official estimates on smuggled imports.
There are 40 trading partners with a positive customs duty gap of Rs. 49.2 billion, whereas there are 20 countries having a negative customs duty gap of Rs. 9 billion. These estimates exclude the discrepancies arising because of costs, insurance, and freight in order to arrive at the other possible reasons for the import gap, the FBR report said.
The International Trade Center (ITC) compiles world customs data. Detailed export and import data reported to ITC by trade partners of Pakistan are collected to estimate the tax gap for the import partners of Pakistan. First, the FBR calculated the import gap. Secondly, the FBR used 8-digit commodity-level data on imports from FBR to calculate effective duty rates for each country.
Finally, the FBR estimated the potential customs duty gap by multiplying Import Difference between the countries with effective duty rates. Due to the non-availability of data on all countries that export to Pakistan, the FBR calculated this gap for 60 countries which constitutes 67 percent of total imports in 2019-20, the FBR report added.