Smuggling, illicit movement of goods, contraband items have been nabbed, huge volume trade hands through Afghan Transit Trade, hoarders have been taken into task, evasion led to collapse in the economy, these all juicy words are making headlines, where an observer pointed out that this has been happening since decades and never addressed as being one of the major factors which led to collapse in the state of the economy.
Smuggling appeared to be a twin-edged sharp sword, killing the very existence of the country where industries were closing down or could not compete with the menace where each day, the undocumented economy got a new bloodline with tax evasion at its peak. For long, the traders and businessmen have been at war with the authorities, convincing them slowly the legal trade has been wiping out from the national economy, and the undocumented economy has seen substantial or mushroom growth.
Ali Nawaz, CEO of Chase Securities, said that the menace of smuggling persisted in Pakistan for various reasons in the past. Factors such as porous borders, corruption within law enforcement agencies, and limited resources for monitoring and surveillance all contributed to its prevalence. Additionally, demand for cheaper goods and lack of awareness about the economic repercussions fueled the illicit trade.
Smuggling has undoubtedly made a significant dent in Pakistan’s economy, leading to revenue losses, unfair competition for legal businesses, and undermining government efforts to collect taxes and tariffs”, said Ali Nawaz.
To curb smuggling, Pakistan must prioritize a multi-pronged approach. Strengthening border security, investing in advanced surveillance technology, and increasing penalties for those involved in smuggling are the crucial steps, he said.
Furthermore, promoting public awareness about the economic consequences and encouraging local industries can discourage the demand for smuggled goods. Finally, enhancing international cooperation to address transnational smuggling networks is essential for long-term success in combating this issue, he said.
Recently, the Chief Executive Office of the Pakistan Business Council, Ehsan Malik, wrote a letter to the Pakistan Business Council where he proposed several key measures to put a lid on the trade flows from Afghanistan Trade and addressed that there has been a need to renegotiate the ATT. The Council said for several years, the misuse has severely affected the tax revenues and the formal sector.
He said last year; the Council prepared guidelines where several measures were proposed; one of them was to place qualitative checks in line with established and verified consumption preferences and patterns. For example, if Afghanistan’s population is 37 million and the per capita consumption of tea is 0.6 kilograms. It may be allowed to import 22,000 tons of tea. Further, if the tea-drinking habit is green tea, then they shouldn’t allow the import of black tea, which is diverted to and consumed in Pakistan. The quantitative limit should also apply to electronic gadgets and domestic appliances.
Moreover, the same letter said to deny transit access to industrial inputs for which no industrial capacity exists in Afghanistan and, for those that capacity exists, allow quantity in proportion to the verified track record of manufacturing.
The Council argued that the government should prevent the flow of Indian goods overland from Wagah to Afghanistan, especially on Indian trucks, due to security risks and the likelihood of diversion.
These measures perhaps have been discussed for a long, and all the proposals and measures to save the local industry have fallen on deaf ears. The recent document revealed that $6.7 billion worth of goods arrived in the fiscal year ended June 30, 2023, through ATT, which recorded a mammoth jump of 67 percent. This has been huge despite the fact the State Bank of Pakistan imposed a ban on imports, which resulted in stuck containers amounting to thousands, where the import value of goods at the port ranges between $4 billion to $5 billion. The legal importers suffered billions of rupees but in the same period, goods filtered into the local markets through ATT. Sheer waste of the tax revenues, losses, and payments made through hundi/hawala (nobody is confirming how and what is the source of the payment made for the goods arrived under garb of ATT). The rise of imports through ATT worth $2.7 billion from where were these dollars arranged and what was the source of payments no one is ready to answer.
ShamsIslam a well-known commodity expert and former Vice President of the Karachi Chamber of Commerce and Industry, identified two major evils that continued to haunt the country’s economy have been tax evasion and higher duty slabs. High tax incidents encouraged tax evasion and led to massive growth in the undocumented economy. Most of the deals and contracts of buying and selling of goods have been finalized on simple paper or market-known terminology “katchi parchi”.
Shams said one could easily assess the volume of the undocumented economy that is more than the size of the real economy worth of our GDP of $385 billion. He explained that higher tax rate and duty incidence, which has been higher compared to our regional peer, attract inflows through the western borders of Afghanistan and Iran, whereas we can even easily find Indian items barging in from Afghanistan, like Indian peanuts available in markets following the advent of winter season. Moreover, Indian dried coconut Khopra, roasted gram without the skin, and soybean meals are reaching Pakistan via the Iran border and Afghanistan.
Besides duties, the high tax rate was also a burden that triggered the black economy and undocumented economy. The goods arriving from ATT are mostly consumed in Pakistan as they are against the demand of our neighbours. The goods arriving mostly like black tea, tyres, cosmetics, toiletries, fabrics, bearings, etc., you just name it, and it is landing. The raids of cities and towns against illicit goods and arresting culprits is just an eyewash because the same items made a travelling of 800 to 900 kilometers from our western border. Another jolt for the economy is businessmen selling Afghani coal took payments in Pakistani rupee converting them into dollars from Karachi, Quetta, or Peshawar and smuggling them to their region.
A big question mark for all the authorities is how to curb the flow of goods, the scary numbers of ATT, which shot up by 67 percent to $6.7 billion, from where they get financing and how payments were made. Even when compared with last year’s numbers, trade was $4 billion, a jump of $2.7 billion; this clearly showed that clamps made on import restrictions due to dollar scarcity went down the drain.
This clearly shows that the amount of goods handled under ATT in FY 23 has been smuggled under legal cover. This not only stole the tax revenues. Say if the customs duties on average on these commodities are 30 percent, which means $2 billion or Rs 600 billion tax collection has been wiped out. From one avenue, the amount of smuggling could easily be gauged.
From the desk of former Chairman FBR Shabbar Zaidi, the note said that it is for the first time that the government has officially and categorically accepted that ATT’s facilities are being misused by the connivance of businessmen from both sides.
There is a very organized network. Many Pakistan businessmen interalia use ‘Benami Afghanis’ to import in the name of Afghanistan and use ‘Hawla’ and ‘cash purchase of USD’ for financing such imports, the document said. This leads to a constant, unexpected, and fluctuating burden on the exchange rate in Pakistan.
The following changes have been made under the ATT regime: the requirement of a Revolving Insurance Guarantee for all Afghan Transit Goods has to be substituted by FBR with a Bank Guarantee @100% of the assessed value.
Processing fee @10% ad valorem shall be imposed on the Afghan Transit goods showing an unjustified increase in forward cargo as Afghanistan Customs duties on these goods are negligible.
