POL export: misuse of ATT

CBR authorities are currently engaged in studying different proposals submitted by the collectorates of customs, Peshawar and Quetta, for evolving new procedural parameters for exporting petroleum products to Afghanistan under the duty drawback regime, Duty and Tax Remission for Export (DTRE) rules and the sales tax refund system.
According to a Recorder Report, CBR plans to make foolproof arrangements for documented tracking and weighing of petroleum products during transportation from the starting point to the final destination, largely to counter tax evasion which has become a common practice. A host of illegalities committed by contract carriers while transporting petroleum products to Afghanistan, have been detected, notably the off-loading of the commodity at various petrol pumps along the route.
Some contract carriers are reported to have adopted such ingenious techniques as the use of air-filled balloons immersed into the tankers, to camouflage the shortage caused by clandestine offloading. All this has resulted in huge revenue loss to the exchequer.
The proposals floated by the two customs collectorates for combating the problem include the weighing of POL-filled carriers at the starting point, and then weighing them again on arrival at the destination, transportation of POL products under the watchful eye of customs escort, and the sealing and de-sealing of consignments under supervision of customs officials.
Yet another proposal under consideration is for POL exporters to hire only the licensed bonded carriers after obtaining adequate financial security from them to ensure safe transportation of the commodity to Afghanistan. Although the weighing of the carriers at the starting point and then at the destination is a fairly reliable mechanism, the operators of contract containers and some influential tribal agencies do not view this methodology favourably.
Incidentally, the remission of DTRE and zero-rating of sales tax is primarily involved in the export of POL products to Afghanistan. It is said that large-scale smuggling of POL products has been going on from some neighbouring countries into Pakistan and then from Pakistan to Afghanistan in the name of Afghan Transit Trade.
Such POL products are said to be available in the interior of Sindh and Punjab, but are being sold at the market rates at petrol pumps. This has caused losses of billions of rupees to the national exchequer. Meanwhile, there have been allegations of involvement of some PSO officials in malpractices such as showing higher transportation of oil to Northern Areas and AJK to claim freight charges. Another drain on the exchequer has been the misuse of interest rate for 14 years, which was originally fixed for only one year.
Under this formula, if the oil refineries were getting profit of less than 10 percent, the government was supposed to help them in meeting their requirements. But if the profit margin exceeded 40 percent then the refineries would have to pay to the government.
Under this formula, the government has reportedly paid to the refineries Rs 11 billion while the latter have paid only Rs 3.3 billion in the last five years. However, the formula has now been revised under the 2002 Policy and the refineries can get up to 50 percent profit margin. Oil refineries have so far received refund of Rs 11,370 million. And according to available data the government paid approximately Rs 19.2 billion to the oil marketing companies (OMCs) in 2005.
It seems that a major cause of the illegalities committed in the transportation of Pakistani POL products to Afghanistan is the use of non-bonded contract carriers. Supervised sealing and de-sealing of POL carriers too can help solve the problem.
A closer vigilance by customs officials can help prevent such malpractices. CBR should impose checks on both refineries and OMCs to prevent smuggling of POL products to Afghanistan. There is a need for closer documentation of all such operations.