The Pakistan Business Council (PBC) has called on interim Finance Minister Dr. Shamshad Akhtar to pay attention to a “bigger leakage of revenue” to the tune of roughly Rs. 1 trillion from under-invoicing of imports.
In a letter, PBC emphasized its previous recommendations to the government to enter into agreements with its main trading partners for data sharing, swift recovery of lost revenue from importers, and securing agreements on Electronic Data Interchange to gain information on export values to match import declarations in Pakistan.
PBC said it has repeatedly shared with the Federal Board of Revenue the significant disparity in export values reported by China, Singapore, Germany, and the United Kingdom of their exports to Pakistan and the declared import values as reported by Pakistan Customs to the International Trade Centre (ITC), a multilateral agency which has a joint mandate with the World Trade Organization (WTO) and the United Nations (UN) through the United Nations Conference on Trade and Development (UNCTAD).
Every calendar year, countries other than those from the GCC, report their trade figures. The extract from ITC in respect of trade for calendar 2022 between Pakistan, China, Singapore, Germany, and the UK was as follows:
| Exporting Country | Reported Exports to Pakistan (in US$ Millions) | Declared Value of Imports by Pakistan (in US$ Millions) | Disparity (in US$ Millions) |
| China | 23,090 | 16,340 | 6,750 |
| Singapore | 1,280 | 880 | 400 |
| Germany | 1,270 | 940 | 330 |
| UK | 750 | 720 | 30 |
| Total for these 4 countries | 26,390 | 18,880 | 7,510 |
Under the ITC convention, countries report (and Pakistan levies duty) on imports on a cost, insurance, and freight (CIF) basis, whilst exports are reported on FOB values. PBC opined that depending on the distance, value, volume, or weight of goods shipped or air freighted, the insurance and freight cost can range between 10-20 percent of the value shipped.
Using 10 percent as a minimum, the disparity in reported values mentioned above would rise from $7,510 million to $8,261 million, equivalent to an average 2022 exchange rate of Rs. 205/$ at between Rs. 1,539 billion and Rs. 1,693 billion.
Based on total trade disparity before adjustment for insurance and freight cost, and on three different assumptions of aggregate customs duties (CD, ACD, RD) i.e., 10 percent, 15 percent, and 30 percent. To this, PBC argued there needs to be added GST at 18 percent of duty-paid value and Withholding Income Tax of 6 percent on GST-paid value.
On this basis, the tax revenue loss suffered by Pakistan in 2022 at Rs. 205/$ average exchange rate, is estimated at between Rs. 578.8 billion to Rs. 963.9 billion, as follows:
| On Assumption of Aggregate Duty (CD, ACD, RD) | Revenue Loss on Account of Duties (Rs. Billion) | Revenue Loss on Account of GST @18% (Rs. Billion) | Revenue Loss on Account of Withholding Tax @6% (Rs. Billion) | Total Revenue Loss (Rs. Billion) |
| 10% | 154 | 304.9 | 119.9 | 578.8 |
| 15% | 230.9 | 318.6 | 125.3 | 674.8 |
| 30% | 461.9 | 360.3 | 141.7 | 963.9 |
A revenue loss of Rs. 578 billion at a low 10 percent cumulative duty rate is significant, let alone nearly Rs. 1 trillion on the more likely 30 percent cumulative duty. The exact loss will need to be determined by the FBR/Customs by reference to actual duty rates on the items imported and in the case of China, whether a concessional rate applies under the FTA. In any case, the revenue loss is unlikely to be below Rs. 578 billion.
PBC emphasized its past recommendations to the government to enter into agreements with its main trading partners for Electronic Data Interchange (EDI) on trade, which could potentially give real-time transparency on export values. Some attempts were made in the past but technical and other reasons, including resistance from trading partners, have thwarted this effort.
This needs to be renewed, said the Council, this time with determination similar to the government’s efforts to thwart smuggling and misuse of the Afghan transit trade. Secondly, when Customs receives information through EDI or otherwise of disparity between export and import values, it should move swiftly to recover lost revenue from the importer.
Finally, now that Pakistan has entered into an FTA with GCC, details of which need to be shared, it is vital that Pakistan secures EDI to gain information on export values to match import declarations in Pakistan.
this happened because our leaders prefer to put the business tax in their own pockets or banks and not put business tax money in the business vaults and they sent the business abroad not to Pakistan
This practice of under invoice misdeclation going on since decades when tarrif use to b as high as120%
Now it’s 20%
Nothing is possible without the collaboration of appraisement, customs valuation department. Its looks like a joke, to discuss it today.
ok thanks for that information
So the projected loss is 3.6 billion dollars but we are going to use rupees to represent every thing negative and use dollar for everything positive so that in inconsistencies we can effectively make a news article about more bad and less good. If revenue loss from under invoicing is compared to the resulting increase in comfort of the business man where despite dire economic situation they felt a relief from tax that give you nothing in return, the it could have been visible that the reason is not tax avoidance but instead more effective direct use of funds that the government is not doing.
First the government has to set the example by effectively utilizing already collected tax and developing only the areas which paid the tax and without wasting funds on lame planning.
Then The business community would be attracted to pay taxes. Everyone pays GST, the government is unable to collect and use it. Why would anyone pay you thier own tax when your are incapable of even collecting other peoples already paid tax. And the business men see it first hand.
ok thanks for this information
Perhaps we need to look at this from first principles.
Why do people under-invoice? They pay the full amount to supplier, so no benefit there.
If under invoiced by 50% they pay low duties, so the selling price is lower for buyer.
Let us say duty is 25%+ sales tax 15%. So on a real cost of Rs.100 C&F item to importer is he pays Rs.20 instead of Rs 40. Item costs him Rs 120.
He can in a competitive market, probably sell it wholesale for Rs 150, and retailer for say 200.
If it costs him 140, and bank interest rates are 25% pa, cost of doing business is around 5%, how much will he earn?
This is without all the various other taxes.
Our problem is an unrealistic tax structure and a corrupt and incompetent government, which has led to a weak Rupee and low buying power.
“Cracking down” is not the answer.
Fix the underlying cause of why people cheat on taxes. No one likes to do that, but survival comes first.