Import substitution
Pakistan supposedly is an agricultural economy, but unfortunately agriculture’s contribution to our GDP is negative. The fact is this is the one sector which is exempted from tax and our sugar mill owners — mostly politicians — are enjoying the benefits of this exemption. Sugar is not only bad for health, but its production also consumes a huge quantity of water (up to 4,000 litres of water are required to produce one kilogram of sugar), and water is getting scarce every year. 

Sugar exports are subsidised by the government, the fertiliser required for it is also subsidised, and as a result sugar mill owners further enrich themselves and are able to buy expensive properties abroad (as some of our politicians have done). The government should immediately stop aiding those involved in sugar production. Instead, it should help farmers to produce those items that we import at a cost of billions of rupees, like lentils and palm oil. Import substitution is badly needed for the economy to recover.

Shakir Lakhani
Karachi
The News, November 18, 2017
https://www.thenews.com.pk/print/245529-import-substitution


Tax big fish
Sir,
Addressing businessmen and others in Karachi on October 11, General Qamar Javed Bajwa called for broadening the tax base and bringing in financial discipline to break the ‘begging bowl’. The army chief has hit the nail on the head. The country needs taxes to survive, and for this purpose I have a suggestion to increase tax collection substantially. Military courts should try all smugglers and other tax evaders. The big fish among them should be executed immediately, while the small ones can be sentenced to imprisonment terms. The retail markets are full of smuggled items and other goods on which taxes have not been paid. By meting out stringent punishment to such people, the country will be able to stand on its own feet and will not need the IMF to bail it out. Moreover, Rs5,000 notes and prize bonds of large denomination (Rs5,000 and above) should be withdrawn, as they are used by smugglers and tax evaders for their nefarious purposes.
Shakir Lakhani,
Karachi.
The Friday Times, November 10, 2017
http://www.thefridaytimes.com/tft/letters-194/

 Trade audit
Instead of trying to curb smuggling, underinvoicing and misdeclaration of imported goods, the government frequently resorts to stop-gap measures like imposing regulatory duties and amnesty schemes. There is one simple measure which the government can take to substantially increase revenue. According to China Customs, Pakistan imports $17.23 billion worth of goods from China every year, but according to Pakistan’s import data, the value of our imports from China is only $13.68 billion.
This difference of $3.5 billion is due to underinvoicing and misdeclaration by our unscrupulous importers and it is causing a loss of Rs150 billion to the exchequer every year. The Electronic Data Interchange system between China and Pakistan has been ready since May, but has not been implemented. If the Electronic Data Interchange system is implemented, China Customs will electronically transmit to Pakistan Customs details of each and every consignment exported from China to Pakistan immediately after shipment. This data can be compared by our Customs with the entry filed by Pakistani importers, and in case of discrepancy, the importer must be fined, and duty and taxes recovered on the actual value of the consignment.
Shakir Lakhani (Karachi)
The News, November 11, 2017
https://www.thenews.com.pk/print/243500-Trade-audit



How to get rich while saving billions in taxes in Pakistan
By Shakir Lakhani Published: November 9, 2017


Pakistani Customs officials prepare destroy seized liquor on the outskirt of Islamabad, 14 March 2007. Pakistani Customs Collectorate destroyed thousands of illicit liquor bottles smuggled into the country. Prohibition has been enforced in the Islamic republic since the 1970s but clandestine production of alcohol is rampant especially in the rural areas. Officially two breweries operate in the country to provide liquor to non-Muslim communities, who form three percent of the 150-million-member Muslim state. PHOTO: GETTY


I’ve read a lot on how to get rich in a short span of time if you are living in a developing country like Pakistan. But all the writers of such articles have missed the easiest method of all – collude with the customs to cheat the government.
One way of doing this is what an enterprising importer did recently. In this case alone, the company must have cheated the government of at least Rs100 million by importing 80,000 cell phones (which were recovered from the bungalow) without any payment of duty and taxes.

In another raid, the authorities seized a container (belonging to the same importer) with over 63,000 mobile phones and over 500 tablets worth Rs285 million in the market. The amount of tax evasion in this case alone was Rs104 million. Since the company imported 800 such containers in the past few years without any payment of duty and taxes, it deprived the government of at least Rs80 billion, and has probably put most of the money in foreign bank accounts.

It is important to note that all of this could not have happened without the involvement of customs officials. A couple of years ago, my neighbour returned to Pakistan after spending some years in Dubai. All his baggage (including brand new refrigerator, deep freezer and the latest LED TV) was in a container. He only had to pay a couple of thousand rupees as custom duty. Furthermore, the container was exempted from being examined by customs officials, for which he had to give Rs25,000 under the table to the customs personnel who were in-charge of conducting a detailed inspection of his container as per practice.

So why is it mind-boggling when we hear of middle-ranked customs personnel owning large bungalows in posh localities like Karachi’s DHA?
But it does not stop there.
During my 50 years of dealing with customs, I have seen metal plates and rubber tires being brought into the country under the guise of being declared as scrap. The most common trick is under-invoicing, where the price of an imported item is declared at a much lesser value in order save on duty and taxes (sometimes the declared price is 10%-20% of the actual price).
Often, however, the name of the item is changed to that on which the duty is less significant. Toys, for instance, are subjected to 10%-20% duty, but the unscrupulous importer will declare toys as, for example, used Cathode ray tube (CRT) monitors, on which the duty is only 2%. So if the container door is opened, which is usually not the case, the customs examiner will see the monitors but will not see the toys hidden behind the monitors in the back of the container. Even if he does, he can always be paid off. This could have happened in the case of cell phones, which were declared as LED lights.

Then there is smuggling. Karkhano Bazaar in Peshawar, for instance, has about 5,000 shops, all selling smuggled goods that have been imported without appropriate or any payment of custom duty and other taxes.


Now one doesn’t require a doctorate in economics to calculate the loss to the exchequer by the shop owners of Karkhano Bazaar. Even if the sales of each shop is Rs10,000 a day (a very conservative estimate), Rs5 billion every year can and should be collected as sales tax from the thousands of shops in Karkhano Bazaar. More than this amount can be recovered from shopping malls throughout the country where smuggled items are openly sold.
Unfortunately, instead of recovering due taxes from smugglers and those indulging in under-invoicing and misdeclaration, the government prefers to heavily tax the salaried class and other honest taxpayers.
When a country’s leaders are themselves corrupt, it is natural that the government would encourage corruption. All governments in Pakistan (including those of PPP and PML-N) have encouraged corruption and accumulation of black money. Every couple of years, a tax amnesty scheme is announced to enable black money holders to whiten their illegally-earned wealth. The most recent amnesty enabled property speculators to get illegally-earned Rs290 billion whitened, by paying only Rs877 million.

Such amnesties are grossly unfair to honest taxpayers comprising mainly of the salaried or middle class, who have to pay up to 35% of their earnings every year as income tax to the government, and this excludes sales tax. But the government goes on penalising honest citizens and encouraging tax thieves by such measures.

The most recent measure is the imposition of regulatory duties on imports of many items. The government believes it will be able to collect Rs40 billion through this measure. 

Unfortunately, such steps have failed repeatedly in the past, and I doubt if even Rs4 billion will be accumulated from this measure. The reason, of course, is that smuggling, under-invoicing and misdeclaration will increase substantially and we’ll be back to square one, as corruption is too deep-rooted in our system.




Shakir Lakhani

Engineer, former visiting lecturer at NED Engineering College, industrialist, associated with petroleum/chemical industries for many years. Loves writing, and (in the opinion of most of those who know him), mentally unbalanced. He tweets @shakirlakhani (twitter.com/shakirlakhani)


https://blogs.tribune.com.pk/story/59950/how-to-get-rich-while-saving-billions-in-taxes-in-pakistan/