The Federal Tax Ombudsman (FTO) has observed that the existing precautionary measures have failed to check organised fraud and manipulation during transit of containers to Afghanistan under the transit trade facility. It is learnt here on Thursday that the FTO report has highlighted the role of the precautionary measures taken by the government to check smuggling under the ATTA.
The report said that the government restricted transport of Afghan transit cargo to Railways and Isaf/Nato cargo to NLC as a precautionary measure against misuse. Whereas Railways role in transport has dwindled to a negligible level, the role of private sector has increased to a level that it covers most transit cargo. The NLC started ISAF transit in May 2002 but did not ensure scanning and tracking mechanisms on transport being authorised by it to private transporters to transport transit cargo.
Indeed the existing precautionary measures are too porous to be effective against organised fraud and manipulation. There are two components to the problem of smuggling of ATT goods into Pakistan. One is when the goods return to Pakistan after crossing into Afghanistan. The border security forces have failed to control this type of smuggling. As regards Customs, it has no presence, even capability to be effective at the borders.
The second component is that transit goods do not cross into Afghanistan at all and are pilfered within Pakistan. This problem can be controlled effectively through the use of RFID seals, and en-route monitoring through GPS and GPRS systems. Using latest IT technologies, both categories of goods can be identified should the exporters of goods be put under statutory obligation to ensure that all transit goods have embedded bar codes. For a small additional cost, it would be within reach of the law enforcement agencies to detect presence of transit goods in Pakistan
The report further said that it is true that large quantities of goods meant for Afghanistan under ATTA are smuggled into Pakistan under wrong declarations. As per IGMs the goods that became case property in FIR No 179/2009 were declared as "Assorted Beverages". Their general description as given in the GDs was "Food Stuff Assorted Beverages" and "Soft Drinks and Fresh Juices". In actual fact, there were 6623 bottles of liquor and 7421 tins of beer in two containers that were intercepted by Islamabad Police. This clearly reflects that the importer had misused the ATT facility. The loss to the exchequer as determined by the Customs in this case is Rs 16.9 million, excluding fine and penalties.
The smuggling and tax evasion can be effectively controlled by carefully selected and motivated anti-smuggling/anti-evasion staff supported by well-considered legal and procedural framework that is complemented by adequate technology input in an environment of efficient supervision and firm accountability for wrongdoing. The law enforcement agencies to whom anti-smuggling powers have been assigned are responsible for containing smuggling in their respective jurisdictions. Customs is responsible for controlling evasion of duties and taxes on the import of cargo being cleared through regular Customs stations.
The report added that the diversion of transit cargo en-route from Karachi to Torkham/Chaman does not constitute Smuggling as defined under Section 2(s) of the Customs Act, 1969. This only attracts penal provisions under Section 156(1) 64 of the Customs Act, 1969 for evasion of duties and taxes by misdeclaration of goods or providing fake import authorisations.
The definition of smuggling clearly needs to be suitably amended to include in its purview all en-route diversions of transit goods. The Customs Act and Customs Rules provide extensive powers to customs officials to protect the economic borders of Pakistan. However, investigations held during the course of this study indicate that smuggling and evasion of taxes is rampant, both through blue and white-collar channels.
It is apparent that the problem is not so much with the law as with its enforcement. In order to rectify the situation we will have to place greater reliance on automation and technology rather than manual processes. Introduction of appropriate technology is critical to minimising direct contact between importer and tax collector, and to reduce leakages in the system, the report added.