Pakistan Government tightens the noose around Afghan Transit Trade
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In Islamabad, the Federal Board of Revenue (FBR) and the Ministry of Commerce have recently implemented a more stringent policy regarding Pakistan's role as a transit country for commercial imports heading to Afghanistan.
Under SRO 1397(1), the Ministry of Commerce has prohibited the transit of various goods through Pakistan to Afghanistan. These items encompass a range of products such as fabrics, tires, black tea, home appliances, toiletries, cosmetics, and nuts. The Ministry of Commerce has classified these items as "prone to smuggling."
Furthermore, at the recommendation of the Ministry of Commerce, the FBR has imposed a 10% processing fee on major categories of commercial goods in transit to Afghanistan. This processing fee is applied at a rate of 10% ad valorem on such goods imported into Afghanistan through Pakistan.
Major categories subject to this fee include confectionery, chocolates, footwear, machinery (mechanical and electrical), blankets, home textiles, and garments. In separate SROs, the FBR has also introduced draft resolutions to enforce stricter controls on transit trade, including increased checks and guarantees to ensure the consignments reach their intended destinations.
These resolutions propose more frequent scanning of consignments after the Goods Declaration (GD) has been signed. Additionally, they suggest requiring a bank guarantee equal to the duties and taxes of the consignment to ensure that Afghanistan-bound goods reach their final destination. These guarantees could be utilized if the imported goods fail to reach Kabul.
The reason behind these measures lies in Afghanistan's landlocked status, which necessitates the transit of goods through other countries, primarily Pakistan. The sale of in-transit goods within Pakistan is considered illegal and falls under the category of smuggling. These recent actions are prompted by concerns about smuggling-prone items being imported by Afghanistan through transit in Pakistan.
Collaboration between civil and military leadership under SIFC has led to these decisive steps. Moreover, the surge in Afghan Transit Trade via Pakistan during FY 2022-23, an increase of 67% from the previous fiscal year, has drawn attention. This growth appears unusual, given Afghanistan's economic challenges and trade deficit.
The rise in transit imports is attributed to lower imports by Pakistan of the same items that were being "imported to Afghanistan." Pakistan reduced imports of these goods last year to curb non-essential and luxury imports and improve its current account deficit. In essence, the significant increase in smuggling of these items has not only resulted in revenue loss for Pakistan but has also undermined the government's import control measures. It has affected legal business revenue and harmed the domestic industry.
Given the balance of payments crisis and the risk of defaulting on debt, Pakistan had to take action to prevent smuggled goods from entering its territory. This decision was made reactively in response to these pressing economic concerns.
