About a decade ago, it was proposed that Pakistan Customs be linked with China Custom to curb or at least minimize under-invoicing. Intermittently, there have been reports about progress towards the establishment of an Electronic Data Interchange System (EDIS) but nothing appears to have materialized until now. This month the deadline of April 30 was set for Pakistan and China to exchange trade data digitally.
Yes, the discrepancies of Pakistan China trade have undoubtedly raised many red flags. While many problems plague Pakistan’s current account that would require extensive re-hauling of the economy in the long term to fix, this is a problem that can be addressed in the short term and can save the economy billions.
One estimate suspects under-invoicing to have crossed the Rs.300 billion in 2010 on imports from China. A relatively simplified but pertinent estimation of Pakistan-China trade by PBC placed the discrepancy at $3.5 billion for 2016.
But as laudable as this measure is, assuming that its implemented timely and not left to languish for another decade, it has a number of caveats attached. Pak-China trade is not the only bilateral trade prone to under-invoicing nor is the official channel of formal trade the only avenue for nefarious activities.
A study published in 2016 by the Lahore Journal of Economics estimated more than $92.7 billion in losses from 1972 to 2013 for 52 major traded commodities for trade with 21 partners due to mis-invoicing. The gross revenue loss to the national exchequer was placed at $21.1 billion while loss of revenue in the form of custom duties evasion and export withholding tax was at $11 billion. The annual average net revenue loss due to it was roughly equal to 11.2 percent of revenue from tariffs. While trade with China was identified as one of the main culprits, it is by no means the only one.
A PBC study on under-invoicing from UAE lists a range of goods from mineral and chemicals to dyes, cosmetics and textiles on which disparities were observed. As per the study, Pakistan loses about Rs.150 billion each year to under-invoicing which is part of the Rs.600 billion lost each year due to smuggling and misuse of concessionary duties.
Among other countries, a cursory comparison between ITC data and SBP data for Pakistan’s trade with USA, Japan, and Indonesia lead to a discrepancy of nearly Rs.1.9 billion.
APTTA is another channel that is in a league of its own. In 2015, 9 out of the top 10 products imported through APTTA were recorded at values significantly higher reported exports by partner countries. The value of these discrepancies of the top 10 products alone was $1.4 billion that is nearly 60 percent of APTTA’s $3.18 billion trade (as per statistics reported by PBC based on Pakistan Customs data).
By its very nature, it is hard if not impossible to gauge the actual extent of illicit trade activities. The estimates however provide a rough guideline as to the scale of problem faced by the country. One hopes that EDIS would be implemented this time and not left to dwindle away in talks. One also hopes that this is seen as a step in the right direction, the first of many, which need to be taken to fix the chronic problems of trade figures’ disparities.
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