Detecting loopholes in transit trade agreement signed between Pakistan and ISAF/Nato forces in Afghanistan, the Federal Tax Ombudsman has estimated that the value of ATT-related goods smuggled into Pakistan (both pilfered inside Pakistan and returning from Afghanistan) is around US $2 billion per annum.
It is learnt here on Thursday that the FTO report submitted to the Supreme Court of Pakistan has disclosed that the loopholes in the customs procedures to allow transit of containers to ISAF/Nato forces in Afghanistan without examination of goods provide a great opportunity to misuse the facility.
According to the report, the estimated value of ATT-related goods smuggled into Pakistan is approximately US$2 billion per annum. The estimates of loss to the exchequer do not appear to be off the mark, FTO report says. As regards transit cargo for ISAF/Nato/US forces operating in Afghanistan, the Afghan Transit Trade Agreement (ATTA) is not relevant as this transit facility has been provided under a Government of Pakistan MoU dated June 19, 2002 with ISAF. While the MoU does not contain any provision to compromise correct description, 'Inspection' or 'examination' of ISAF/Nato/US cargo is not specifically provided in the procedure.
This loophole in the customs procedures for ISAF cargo has created potential opportunities for the wrongdoers. In fact available evidence clearly points that indeed the transit goods were not found the same as were declared. That is when in early 2009 FBR did direct the Customs to conduct 'Examination' of ISAF cargo on the basis of selectivity criteria, after it came to light that ISAF transit was not completely abuse-proof, report said.
The FBR needs to move appropriate amendments in the Customs Act, making mis-declaration detected tantamount to abetting smuggling. The new APTTA, 2010, ratified recently provides for filing GD and allows examination to the extent of 5 percent of containers. There is no logic why ISAF/Nato cargo should not be dealt with in the same manner, the report questioned.
The FTO said that the jurisdiction of Customs to check the transit cargo is limited by the provisions of Chapter XIII of the Customs Act, 1969, read with the provisions of the ATTA, 1965. While there is no explicit provision in Chapter XIII of Customs Act to enable Customs to examine the Afghan transit cargo in Pakistan, ATTA does provide for 'Inspection' of import cargo for Afghanistan and for both 'Inspection' and 'Examination' for export transit originating from Afghanistan. The reason for this difference was evidently to create deterrence against smuggling of narcotics that could possibly be concealed in export cargo of Afghanistan in transit through Pakistan.
In practice, Pakistan Customs has been conducting selective examination of transit cargo to deter misuse by mis-declaration of quantity, quality and description of goods. Collector Customs Public Notice No 16/2000-(A) dated 30-09-2000 contains the enabling provision for examination. It should therefore be possible to do the same en-route where the Customs authorities have received reliable information of potential wrongdoing.
The FTO said that the mechanism for transportation of goods under Afghan Transit Trade Agreement or any other identical instrument is not at all sufficient to prevent smuggling. The investigation conducted by the Office of Federal Tax Ombudsman shows that transportation system is one of the weakest links in the transit trade mechanisms of Pakistan. En-route diversions, off-loadings and replacements are a frequent phenomenon indeed. Under ATTA Pakistan Railways was the only authorised carrier for transiting goods to Peshawar/Chaman. Subsequently, NLC was added as a 'bonded carrier' to carry transit goods to Amangarh, Nowshehra/Chaman. The transit cargo in both cases was de-sealed and reloaded on Afghan trucks under fresh seals.
The ECC in 2002 assigned the role of central co-ordination agency for arranging logistics for transportation of cargo pertaining to the humanitarian and rehabilitation programme in Afghanistan to NLC. As NLC did not have the requisite number of trucks, it started authorising private sector transporters to do the job instead. The practice deteriorated over time to the extent that NLC stopped using its own fleet for ISAF transit. It even stopped using Hired Mechanical Transport (HMT) for the purpose and instead started the malpractice of authorising private sector transport on payment of service charges.
As reported by Pakistan International Freight Forwarders Association (PIFFA), initially the rates of service charges were lower, but over time these were raised to Rs 33,000 to Rs 38,000 per 40-feet container. Also, as a bonded carrier under SRO 450(I)/2001 dated 18-06-2001. NLC was well aware of the requirement of transporting transit cargo on vehicles fitted with tracking devices, but it did not ensure that this requirement was met by the private sector vehicles that it requisitioned to transporting the transit cargo.
Transport by road has thus turned out to be a major vulnerability of the transit system. Transport of transit cargo by Railways had also suffered serious set back due to delays and en-route theft, but it was perhaps not as bad as it has turned out in the case of NLC. The report suggests that besides making the transport system competitive and open to both public and private carriers, the following precautionary measures are necessary to control the transit-related abuse:-
(1) Ensuring that transit cargo is carried only by bonded carriers; (ii) introducing live monitoring of vehicles carrying transit cargo through state-of-the-art tracking systems based on GPS and GPRS technologies; (iii) sealing the cargo containers with RFID seals; (iv) scanning the cargo containers both at the ports of entry at Karachi and the Customs Stations of exit at Torkham, Chaman. etc; (v) keeping proper records of weight of containers/vehicles at both ends of the transit continuum; (vi) en-route reporting by the transporters at Customs check posts established since 2009 on the prescribed transit routes; (vii) effective anti-smuggling cover to traffic-in-transit; and (viii) suitable financial guarantees covering duties and taxes in case of any en-route pilferage.
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