In Islamabad, the Federal Board of Revenue (FBR) and the Ministry ofCommerce have recently implemented a more stringent policy regardingPakistan’s role as a transit country for commercial imports heading toAfghanistan.
Under SRO 1397(1), the Ministry of Commerce has prohibited the transit ofvarious goods through Pakistan to Afghanistan. These items encompass arange of products such as fabrics, tires, black tea, home appliances,toiletries, cosmetics, and nuts. The Ministry of Commerce has classifiedthese items as “prone to smuggling.”
Furthermore, at the recommendation of the Ministry of Commerce, the FBRhas imposed a 10% processing fee on major categories of commercial goods intransit to Afghanistan. This processing fee is applied at a rate of 10% advalorem 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 draftresolutions to enforce stricter controls on transit trade, includingincreased checks and guarantees to ensure the consignments reach theirintended destinations.
These resolutions propose more frequent scanning of consignments after theGoods Declaration (GD) has been signed. Additionally, they suggestrequiring a bank guarantee equal to the duties and taxes of the consignmentto ensure that Afghanistan-bound goods reach their final destination. Theseguarantees 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, primarilyPakistan. The sale of in-transit goods within Pakistan is consideredillegal and falls under the category of smuggling. These recent actions areprompted by concerns about smuggling-prone items being imported byAfghanistan through transit in Pakistan.
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Collaboration between civil and military leadership under SIFC has led tothese decisive steps. Moreover, the surge in Afghan Transit Trade viaPakistan during FY 2022-23, an increase of 67% from the previous fiscalyear, has drawn attention. This growth appears unusual, given Afghanistan’seconomic challenges and trade deficit.
The rise in transit imports is attributed to lower imports by Pakistan ofthe same items that were being “imported to Afghanistan.” Pakistan reducedimports of these goods last year to curb non-essential and luxury importsand improve its current account deficit. In essence, the significantincrease in smuggling of these items has not only resulted in revenue lossfor Pakistan but has also undermined the government’s import controlmeasures. It has affected legal business revenue and harmed the domesticindustry.
Given the balance of payments crisis and the risk of defaulting on debt,Pakistan had to take action to prevent smuggled goods from entering itsterritory. This decision was made reactively in response to these pressingeconomic concerns.
