Massive misreporting

Under invoicing is a major source of customs duty leakage but mis-reporting cannot be gauged only in terms of loss revenue. Analysis of trade deficit, unfavourable FTAs and PTAs, exports and imports trend, policies for managing Pakistan’s international trade, all depend on available data. The best analysis and the best suggestions for addressing Pakistan’s woes would fall to the ground if they were based on inaccurate information.

The scale of misreporting in Pakistan’s international trade is staggering. Nearly $16 billion worth of trade with top five trading partners is mis-reported with China taking the lead followed by UAE.

Based on SBP data, Pakistan reports bilateral trade with China at $9.2 billion whereas the corresponding figure reported by China is of $17.2 billion. The Senate Standing Committee on Commerce and Textile attributes this discrepancy to massive under invoicing. Indonesia is another country with whom under-invoicing appears to be flourishing. Pakistan has reported bilateral trade nearly half of that reported by Indonesia, implying under invoicing of palm oil imports.

For Japan and USA, the discrepancy appears less significant in terms of percentage of volume of trade. Pakistan’s reporting of bilateral trade with USA is a half a billion less than that reported by America, making it a 10 percent discrepancy. Similarly, in Japan’s case the discrepancy is 24 percent, with Pakistan reporting half a billion less than what Japan is reporting.

But under invoicing is one side of story. In the case of UAE, Pakistan reports bilateral trade of $7.8 billion whereas UAE reports $1.7 billion. Bulk of bilateral trade from UAE is in the form of petroleum product imports. Is it possible that they are being over-invoiced? And if so then to what ends?

Keeping international trade aside, transit trade as well poses the question as to what is being transported across Pakistan’s borders in case of APTTA (See “APTTA: walking the dark”, published by BR Research on July 13, 2017).

Admittedly, other than nefarious reasons, there could be other factors that explain the discrepancies. There could be a time lag in registering and reporting transactions, transportation and insurance costs can inflate figures, or the trading partners could just not be reporting data accurately. But when the scale of misreporting amounts to billions, these reasons don’t hold water any more.

How is Pakistan supposed to form policies to promote exports and curb imports if the actual figures are so grossly mis-reported? Illegal activities and loss of revenue through duties aside, international trade policies result in ramifications that reverberate for years. It is little wonder that Pakistan’s policies remain ineffectual when they are based on information so wholly inaccurate.