Senate body for comprehensive strategy to deal with under-invoicing challenge

The Senate Standing Committee on Commerce and Textile Industry on Thursday observed that trade-based money laundering by way of under invoicing/under valuation of IT equipment import is taking place, besides smuggling, which is one of the major reasons for de-industrialization and revenue loss to the national exchequer. The Leader of the House in the Senate Shibli Faraz also grilled the Commerce Ministry while saying how one can expect industrial growth in the country when there is no National Industrial Policy at all.

The parliamentary panel met with Mirza Mohammad Afridi in the chair, here on Thursday, where the FBR admitted 17 importers were found involved in mis-declaration and under invoicing in the IT equipment's imports. The Federal Board of Revenue (FBR) revealed that 46 percent under-invoicing was observed during 2015 to 2019. The progress of audit of new IT products revealed under-invoicing of $5 million in supplier value of $11 million of a brand.

Directorate is in the process of filing a reference before Special Judge (Customs, Taxation & Anti-Smuggling) Karachi to authorize Anti-Money Laundering proceedings in terms of sections 16(1) and 8(1) of the Anti-Money laundering Act 2010 in the light of observation being instituted by the Directorate of PCA Karachi on the commission of predicate offence of mis-declaration in terms of Section 32 and 32A of the Customs Act 1969.

The FBR officials informed that most of importers were using third parties (shell/cover-up companies) to make imports. However, two importers including M/s Megaplus Islamabad and M/s Unique Technologies were directly making imports from original equipment manufacturers (OEMs).

The OEMs namely M/s Dell Global BV Singapore and M/s HP Singapore were approached for verification of purchase invoices of various importers which had been submitted to customs at the time of imports. Five verification letters were received from both the OEMs wherein forgery /suppression of value were confiscated in respect of 1017 invoices pertaining to the two importers.

A letter was written to Consul General of Pakistan in Singapore for approaching OEMs to confirm the country and channel through which the payment was received from said two importers against said 1,017 invoices. The State Bank of Pakistan has also been approached to confirm total quantum of payments transferred by said two importers out of Pakistan and details of respective banks. Directorate General of Customs Valuation Karachi informed the committee that earlier there was no valuation ruling or advice for assessment of laptops and desktops. Laptop/desktop importers first go to Dubai to change the invoices and then come to Pakistan with less value.

However, now list prices of Dell, HP and Lenovo have been obtained from their authorized distributors and circulated to clearance collectorates for assessment purposes on December 17, 2019.

After assessment, valuation of laptops increased. A specific brand of laptop has a value of $252 in 2018-19 and $507 in 2019-20. The value of PC was $295 in 2018-19 and now is $356, witnessing 46 percent under-invoicing from 2015 to 2019, customs officials added. "We are now looking at the banking channels to see how the money went out," they added.

Afridi said that under-invoicing is a big issue and the committee is taking this matter seriously, adding there is a need for a comprehensive strategy to prevent under-invoicing. Faraz said that due to under invoicing, the national exchequer and local industries are suffering immensely and it is necessary to adopt a comprehensive strategy.

Customs officials told the committee that the valuation system for importing IT products was not proper, but now a system has been devised for this and now the clearance of the IT product will be done under it.

Member Customs Jawad Agha said that there is on average 10 percent tax rate on IT products in Pakistan which is not very high but unfortunately companies manage to change the invoices.

The FBR has identified over $ 5 million worth of under-invoicing in IT products imports. This was followed by a system that helped check under-invoicing. The FBR officials recognized that the committee has turned its attention to an important aspect, for which steps were taken to create a more sustainable process and now an integrated system has been formulated which would benefit the national exchequer and also strengthen the local industry. In response to Senator Dilawar Khan's question, the DG Valuation said that there is room for improvement in PRAL. Dilawar Khan said external audit of PRAL is necessary as a lot of complaints are being received against it. The committee directed that by March 15, it should be briefed about progress on the issue of under-invoicing.

Faraz suggested that invoice be conditioned on the product with the manufactures invoice which FBR officials said that this aspect needs to be looked at in detail. The committee gave a month time to FBR for consideration of the proposal.

Expressing dissatisfaction over Trade Development Authority of Pakistan's (TDAP) performance, Dilawar Khan said that it has become a white elephant. The committee directed for a detailed briefing on TDAP with respect to its performance, funds utilization on expos, and bringing investment.