Concessions/exemptions: Customs have no mechanism to monitor E&P companies' imports: AGP

The Auditor General of Pakistan (AGP) has said that the customs authorities of the Federal Board of Revenue (FBR) have no mechanism to monitor imports made by Exploration and Production (E&P) companies availing of concessions/exemptions of customs duty, sales tax and withholding tax involving millions of rupees. According to latest AGP report (Customs Department) for audit conducted in 2013-14, the AGP expressed serious concern over non-monitoring of imports made by E&P companies, causing revenue loss of millions of rupees.
It said that the SRO 678(1)/2004 dated 07.08.2004 governs the import of machinery, equipment, materials, vehicle including specialised vehicles or vessels, pick-ups (4x4), helicopters, aircraft, accessories, spares, chemicals and consumables, as are not manufactured locally, imported by the Exploration and Production (E&P) Companies, their contractors, sub-contractors and service companies and LNG operator in Pakistan. As per condition (viii) of the SRO, each importer or E&P company shall develop a software within a period of one year from the date of issuance of said Notification and shall establish an online connection with the customs authorities for regulating the imports made under this notification and condition (vi) (a) states that in the event, an item other than vehicles, is sold to another company in the petroleum sector no import duties shall be levied or charged. Otherwise, it shall be sold through a public tender and duties shall be recovered at the rate often per cent ad valorem of the sale proceeds.
It said that the E&P companies and their service providers imported goods valuing Rs 21,690 million during last six years and enjoyed benefit of concession in customs duty, exemption from sales tax and withholding tax of millions of rupees. The details of imports and their disposal were never produced for audit purpose. Further, none of the E&P companies had developed software to establish the online link with the customs department so far, meaning thereby, the customs authorities themselves had no mechanism to monitor the imports and disposal thereof. Non-implementation of an effective monitoring mechanism provided in the SRO led to pilferage of revenue on disposals made by the E&P companies.
The issue was raised in October, 2013 and discussed in a meeting on 20th November, 2013 at FBR Islamabad. The department replied that the Petroleum Policy 1994 provided a package of concessions to the E&P companies including their contractors, sub-contractors and service companies. All E&P companies, like any other importer, were required by law to maintain record of all imports and in case of failure, they are liable to penalty up to one million rupee in terms of section 156 (1) (96) of the Customs Act 1969. However, suitable instructions regarding implementation of conditions laid down in the SRO shall be issued by the Customs Wing.
Audit recommends that the FBR may provide the details of penalty imposed on E&P companies in the past along with names of E&P companies who had developed the software. Further, details of revenue realised on disposals made by the E&P companies may also be provided to Audit, it added.