Federal Board of Revenue (FBR) is likely to investigate a leading Pakistani commodities' trading group for its alleged involvement in dubious activities and transactions during the last couple of years in Pakistan. The group has recently set up multiple companies in Pakistan and one in Malaysia as well to support its operations, the sources added.
The group has been accused of working to monopolise certain trades on the basis of inferior quality products, mis-declaration with customs to save duty and taxes, and dubious transactions that are not in line with industry practice and in some cases against the law as well.
According to sources, earlier this year one of its subsidiaries tried to import a cargo of Brazilian soybeans that had been rejected in Egypt. The market price at that time was around $350-360PMT; however, the group purchased the cargo at $320-330PMT. Using its Malaysian company as the counter party seller, it wanted to show under invoice in Pakistan ie at $250PMT for customs clearance purpose. However, the product was not allowed to discharge due to lack of compliance and documentation that is required for the import of soybeans in Pakistan. The cargo was then sent to Malaysia where it was discharged and then re-exported the same material to Pakistan in containers against fake documentation.
The sources further stated that the same company has been importing palm kernel expeller which is a product used in animal feed. This product has no use for a solvent extraction plant and is only used for cattle feed. Then the product was sold in open market. However, the group has been importing it and under-invoicing the value.
The company, sources said, is paying sales tax at 5% instead of 10% which is the correct sales tax amount as per the Schedule 8 of June 25, 2015. Instead, it has been using the old sales tax structure which amounts to over $1 million in just one year. The commodities trading group is also using income tax waiver of the solvent plant to import product that is not in the jurisdiction of a solvent plant since they are not crushing it or adding value, instead bagging and selling the product directly for use in cattle feed.
An insider told Business Recorder that the solvent plant is hardly importing any oilseeds for crushing purpose; instead, it is being used as a front company to import palm kernel expeller and save duty and taxes to a great extent.
"Because of cheap cost and pricing, the import of palm kernel expeller is putting a lot of pressure on domestic wheat by-products such as wheat bran that is not sold at good rates because palm kernel acts as a substitute product for cattle feed. The local farmers and flour millers are suffering because of this as well," the insider added.
The same group is also under-valuing exports of various products such as corn. It sells the produce to its Malaysian company at cheap prices and then the Malaysian company sells the same in the international market at international rates taking out a fair amount of money from Pakistani economy and banking system.