The Pakistan Business Council (PBC) has urgently called upon interim Finance Minister Dr. Shamshad Akhtar to address a significant revenue shortfall amounting to approximately Rs. 1 trillion due to the issue of under-invoicing in imports. This matter has been brought to the forefront by the PBC, which is stressing the importance of prior recommendations made to the government. These recommendations include forging agreements with key trade partners for data sharing, expedited recovery of lost revenue from importers, and establishing agreements on Electronic Data Interchange. Such measures are essential for acquiring information about export values, enabling a comparison with import declarations in Pakistan.
The PBC has consistently communicated to the Federal Board of Revenue the glaring disparities in export values reported by countries like China, Singapore, Germany, and the United Kingdom concerning their exports to Pakistan.
These disparities are in sharp contrast to the import values declared by Pakistan Customs to the International Trade Centre (ITC). The ITC, a multilateral agency jointly mandated by the World Trade Organization (WTO) and the United Nations (UN) through the United Nations Conference on Trade and Development (UNCTAD), collects trade data from countries outside the GCC.
In the context of trade figures for the year 2022, the discrepancies between Pakistan and these four countries are stark. China reported exports worth $23,090 million to Pakistan, while Pakistan's declared import value stood at $16,340 million, resulting in a notable difference of $6,750 million. Similarly, Singapore, Germany, and the UK also exhibited significant disparities in their export and import figures with Pakistan.
Under the ITC convention, countries report import values based on the cost, insurance, and freight (CIF) basis, whereas exports are reported based on Free on Board (FOB) values. The PBC highlights that the insurance and freight cost can vary between 10% to 20% of the shipped goods' value, depending on factors like distance, volume, or weight. Assuming a minimum of 10%, the previously mentioned discrepancies in reported values could potentially rise from $7,510 million to $8,261 million, which translates to a substantial sum in terms of the average exchange rate for 2022, estimated between Rs. 1,539 billion to Rs. 1,693 billion.
The PBC's concerns extend to the revenue implications of these disparities. Taking into account three different assumptions of aggregate customs duties (CD, ACD, RD) at 10%, 15%, and 30%, along with the addition of GST at 18% of duty-paid value and Withholding Income Tax of 6% on GST-paid value, the estimated tax revenue loss for Pakistan in 2022, at an average exchange rate of Rs. 205/$, ranges from Rs. 578.8 billion to Rs. 963.9 billion. This substantial loss underscores the urgency of addressing the issue of under-invoicing in imports to safeguard Pakistan's fiscal health.