UNABATED smuggling results in an estimated $2.6bn loss per annum to the national exchequer with the federal and provincial governments having failed to come to grips with the problem.
The plethora of organisations — customs intelligence, customs collectorates, the police, Frontier Constabulary, Frontier Corps of Balochistan and Khyber Pakhtunkhwa, Pakistan Coast Guards, Punjab and Sindh Rangers and Karakoram force — to curb the menace have made little difference.
The issue has been debated at the Tax Reforms Commission level for the last one year. However, a fresh effort to identify the reasons and address them has been made recently by the Karachi-based Preventive Customs Collectorate.
In the past, the quantum of smuggling was projected on the value of goods seized. Now, the Preventive Collectorate has identified 11 smuggling-prone commodities. According to its study, the smuggling of these 11 commodities accounts for 3.88pc of GDP and 9.46pc of the total tax collection. This is not only the highest in South Asia, but is also significantly higher than countries with a similar GDP.
The only tool used for curbing illegal imports in the past was tariff ‘rationalisation’. Lowering the tariff did not significantly support the legitimate imports
For example, India’s smuggling to GDP ratio is only 0.43pc, and in Bangladesh it is 0.04pc. For Greece and Ireland, the ratio is less than a percentage point.
The study also quantifies the demands for the investigated smuggled products in domestic market. As per its estimates, 59pc demand for tyres was met through illegal channel; 47pc for tea; auto parts 57pc; mobile phones 59pc; fabric 3pc; plastic market 11pc; televisions sets 57pc; steel sheets 10pc; vehicles 12pc and diesel 33pc. This is how the unabated smuggling hurts the total industry.
Looking at the past policies, the study says the only tool used for curbing illegal imports was tariff ‘rationalisation’. Lowering the tariff did not significantly support the legitimate imports as observed in case of tea, mobile phones, TV sets etc. So it is not the only way to check the menace and other more effective measures are needed to be put in place.
The smuggling of these 11 commodities accounts for 3.88pc of GDP and 9.46pc of the total tax collection. This is not only the highest in South Asia, but is also significantly higher than countries with a similar GDP
Despite the official campaign against smuggling, Bara markets ‑ the Shah Alam Market in Lahore, Yaru on Chaman Road 30km off Quetta and Ashiana market in Karachi and Bara market of Rawalpindi ‑ are thriving.
Who is responsible? The absence of political will and well-organised, disciplined and well-equipped agencies which are required to resolve this problem.
The analysis stresses that the enforcement strategy should also be linked to the documentation of the economy and the levy of sales tax at retail stage which will offset the major advantage available to smugglers in the shape of 17pc sales tax and 6pc withholding tax at import stage.
It is necessary that the agencies be made accountable for their failure. In few cases multiple agencies are at work at one spot, and overlapping responsibilities hamper normal duties. For example, both the coast guards and the customs operate at the Karachi port.
Therefore, it has been suggested that the government should redistribute the powers and areas among the agencies involved.
Under-invoicing is yet another problem. A major chunk of dinner sets, toys, cheap textiles, textile products, electric bulbs and tubes, sanitary fittings and crockery imported from China, Thailand and other Far Eastern countries are under-invoiced to avoid customs duties. These products have flooded markets at the cost of local industry and its development.
Published in Dawn, Business & Finance weekly, February 15th, 2016
