DesPardes + PKonweb

‘Smuggling Increased Due to Hike in Import Duties’

Did smuggling cross the annual dollar amount calculated by FBR in 2015/2016? Back in 2015/2016, the FBR commissioned a study whose findings revealed that over $9bn worth of goods is smuggled into the country yearly

SoDATA (South Data) — The Pakistan Tehreek-e-Insaf (PTI) government’s policies aimed at curtailing imports have started yielding desired results, according to The Express Tribune.

The trade deficit has contracted considerably after the government hiked customs duty and regulatory duty on imported products to discourage imports and encourage their substitution with locally produced goods.

However, prices of imported products have nearly doubled in the wake of import substitution policies, says the report. “Consumers are facing trouble finding certain products like milk flavoring, chocolate spread and cheese in the market”.

April 2016

It refers to a recent study conducted by the Karachi Chamber of Commerce and Industry (KCCI), which says that high taxes have led to increase in smuggling.

“High tax rates have triggered smuggling of many goods into the country”.

Given the exorbitant taxes coupled with other import duties, smuggling, under-invoicing, misdeclaration of goods and corruption have increased, the report says.

Transit trade with neighboring landlocked Afghanistan has encouraged illegal trade with Pakistan, it says. Nearly 57% of auto parts and motorcycle spare parts are smuggled as Pakistan produces only 18% of the parts, and 16% are imported through legal ways.

The report says 59% of tires entering the country are smuggled while 18% are produced domestically and 23% are imported legally.

Did smuggling cross the annual dollar amount calculated by FBR in 2015/2016?

Smuggling is a scourge that remains a huge issue to deal with regardless of who’s in government, experts say.

Back in 2015/2016, the FBR commissioned a study whose findings included A) Over $9bn worth of goods is smuggled into the country yearly; B) the massive scale of smuggling was not possible without active involvement of many high profile government functionaries.

Experts say the real nexus is between the seller and the buyer which has become deeper and larger over the years.

If import duties are reduced will smuggling of goods reduce or stop? Will import substitution fill the gap? Not so fast.

The Head of Research of Arif Habib Limited Samiullah Tariq says, “The government needed to initiate strict action on the retail sector, otherwise, smuggling would continue into the country”.

He termed the condition of computerized national identity card (CNIC) for wholesalers a good step because the wholesale sector was the root of the retail sector and contributed 18% to the national economy but paid only 0.5-0.7% of taxes.

Last year, a high official of a Small Traders Assoc. in one of the major cities, who is also a highly successful entrepreneur, said, “We never paid taxes nor we intend to and want to”.

“When people from the wholesale segment buy from factories and sell to retailers, there is a huge profit margin in between on which they do not pay the government its due share,” said Tariq.

According to him, “the government needed to step up efforts to curtail smuggling, under-invoicing and other illicit channels, which would help accomplish its goal of import substitution and enhanced export base”.