Smuggling of 11 goods causing $2.63b loss to Pakistan

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Value of smuggled goods US$ 9 billion is 3% of GDP, says LCCI report 2022

Amraiz Khan

Pakistan is losing US$ 2.63 Billion per year due to the smuggling of just 11 goods. The total value of smuggling-prone 11 items stands at US$ 9 billion which is equivalent to around 3% percent of the Gross Domestic Product (GDP) of the country.

These revelations were made in a report of the Research & Development Department of the Lahore Chamber of Commerce & Industry on smuggling during the year 2022.

A breakdown of losses in US dollars to the national exchequer because of the smuggling of these 11 items includes Mobile phones, 1100 million US$, diesel 874 m US$, plastic 222 m US$, auto parts 184 m US$, vehicles 175 m US$, tyres 118m US$, steel sheets 112m US$, tea 77m US$, Cigarettes 27m US$, television 9m US$, garments 2.5m US$.

Though the Customs Intelligence, Lahore range is blowing its own trumpets claiming that it has done much to curb smuggling.

A few days back Customs Intelligence authorities issued figures wherein they claimed that they have registered 127 cases during the second quarter involving Rs2.085 billion and which was a phenomenal increase of 93% as compared to the corresponding period of last year. But the markets of Lahore are flooded with smuggled goods like tyres, clothes, electronics goods, dry fruits, cigarettes, and many other things.

Smuggled items through the borders of Afghanistan, Iran, China, and the Afghan Transit Trade form a chunk of the informal economy. The volume of this informal economy ranges between 50 to 60 percent of the formal economy.

According to unofficial estimates, the size of the informal economy in Pakistan is more than 50% of the GDP.

This essentially means that the informal economy is worth more than 150 billion dollars annually. It is no surprise that due to the presence of an informal economy, Pakistan’s Tax to GDP ratio is merely 10% which is one of the lowest in the world.

Without formalizing the economy, the Government’s vision of making Pakistan’s economy the most competitive in the region which is growing by 6- 7%, and creating employment opportunities for the masses cannot be realized, the report further read.

When this scribe contacted President, of the Lahore Chamber of Commerce and Industry (LCCI), Kashif Anwar said that they have taken up the issue of smuggling with FBR and customs local authorities many times but they remained unmoved.

It is very unfortunate that Customs authorities remain silent due to unknown reasons when a consignment enters Pakistan from any international border including Iran, Afghanistan, or China.

But suddenly they become active when consignment lands in the market concerned and Customs Anti Smuggling or Customs Intelligence conducts raids on the warehouses of the traders and harasses them.

As per the report, a number of players are engaged in smuggling, and their motives, profits, legal status, and responsibilities vary to a degree.

Organized criminal groups are engaged in smuggling to maximize their profits and finance other criminal activities. The causes of smuggling are actually the incentives that motivate traders to be engaged in smuggling.

These causes basically arise from the desire of consumers to satisfy their needs. People who use smuggled goods satisfy their need to purchase desired goods. On the other hand, people who supply illicit smuggled goods seek to satisfy their income needs.

Smuggling is also encouraged by the large tax rates difference between neighboring countries, the report added. This means that goods are cheaper in one country than another, resulting in the enactment of import duties to protect the local industries, the report reads.

As per the report, there are different forms of smuggling including under-declaration of Goods, this happens when the importer declares less quantity on import documents than the actual quantity of goods imported.

This form of smuggling is usually done by the importer in connivance with the customs officers. Assigning a lower value to the goods than their actual value aids smuggling indirectly. Undervaluation often happens out of ignorance, negligence, or connivance at the customs control, the LCCI report further said.

Sometimes, the goods are declared under a different class of imports to attract lower tax rates and reduce the tax liability, this is called misclassification of goods. This again may happen out of ignorance, negligence, or deliberately. Another illegal way that is used to reduce tax liability is the tempering in the documents of goods imported.

The particulars of the goods are changed with the intent to benefit the taxpayer through the reduction in tax. Mis-declaration of the country of origin which happens when a different country is declared as the source of goods rather than the correct country of origin. Transit goods are those goods that are destined for other countries through a particular country. These goods are often sold illegally in the domestic markets of Pakistan.

Smuggling has assumed an alarming proportion and has taken the shape of a parallel economy in the country. It undermines the local industry, discourages legal imports, and deprives the country of billions of rupees of revenue that can be earned through excise and customs duties, the report further said.

It is pertinent to mention here that shops and markets across the country are flooded with smuggled goods of all descriptions. This destroys the local industry and makes it uncompetitive.

Rizwan Bashir, Additional Director Customs Intelligence Lahore while talking to “Pakistan Observer” said, “With meager resources we are doing our job excellently, we seized the smuggled goods worth more than Rs. 2 billion during the last quarter of the year 2022”. He claimed it was a record seizure of the goods last year.

Yousaf Javed, Secretary Information Anjuman e Tajraan, Abid Market Lahore said that they have repeatedly taken up the issue of smuggling with the Customs officials and FBR but to no avail. He was of the view that Customs officers keep mum when smuggled goods enter from International borders. But interestingly they conduct raids on our warehouses when goods are offloaded. Their behavior is also very disgusting with the traders, he lamented.