The Pakistan Business Council (PBC) has urgently called upon interimFinance Minister Dr. Shamshad Akhtar to address a significant revenueshortfall amounting to approximately Rs. 1 trillion due to the issue ofunder-invoicing in imports. This matter has been brought to the forefrontby the PBC, which is stressing the importance of prior recommendations madeto the government. These recommendations include forging agreements withkey trade partners for data sharing, expedited recovery of lost revenuefrom 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 theglaring disparities in export values reported by countries like China,Singapore, Germany, and the United Kingdom concerning their exports toPakistan.
These disparities are in sharp contrast to the import values declared byPakistan Customs to the International Trade Centre (ITC). The ITC, amultilateral agency jointly mandated by the World Trade Organization (WTO)and the United Nations (UN) through the United Nations Conference on Tradeand Development (UNCTAD), collects trade data from countries outside theGCC.
In the context of trade figures for the year 2022, the discrepanciesbetween Pakistan and these four countries are stark. China reported exportsworth $23,090 million to Pakistan, while Pakistan’s declared import valuestood at $16,340 million, resulting in a notable difference of $6,750million. Similarly, Singapore, Germany, and the UK also exhibitedsignificant disparities in their export and import figures with Pakistan.
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Under the ITC convention, countries report import values based on the cost,insurance, and freight (CIF) basis, whereas exports are reported based onFree on Board (FOB) values. The PBC highlights that the insurance andfreight cost can vary between 10% to 20% of the shipped goods’ value,depending on factors like distance, volume, or weight. Assuming a minimumof 10%, the previously mentioned discrepancies in reported values couldpotentially rise from $7,510 million to $8,261 million, which translates toa substantial sum in terms of the average exchange rate for 2022, estimatedbetween Rs. 1,539 billion to Rs. 1,693 billion.
The PBC’s concerns extend to the revenue implications of these disparities.Taking into account three different assumptions of aggregate customs duties(CD, ACD, RD) at 10%, 15%, and 30%, along with the addition of GST at 18%of duty-paid value and Withholding Income Tax of 6% on GST-paid value, theestimated tax revenue loss for Pakistan in 2022, at an average exchangerate of Rs. 205/$, ranges from Rs. 578.8 billion to Rs. 963.9 billion. Thissubstantial loss underscores the urgency of addressing the issue ofunder-invoicing in imports to safeguard Pakistan’s fiscal health.