Misuse of bonded warehouses detected

RECORDER REPORT

ISLAMABAD: The Federal Board of Revenue (FBR) has detected misuse of bonded warehouses by some unscrupulous importers/warehouse licensees.

Sources said on Wednesday that the Directorate of Training and Research Customs FBR on bonded warehouses detected various kinds of misuse of the facility. According to a report compiled by the directorate, the current position of warehoused goods has been explained in view of data obtained from Pakistan Revenue Automation Limited (PRAL).

According to the report, the experience of warehousing in Pakistan has been far from satisfactory in the past. There has been misuse of the warehousing facility by some unscrupulous importers / warehouse licensees. Importers removed goods in some cases without payment of leviable duties and taxes. In other cases, there have been reports of substitution of goods at the customs bonded warehouses.

Warehouses, to a large extent, have become means of storing non-duty paid goods and helped importers in speculation and manipulation of markets, it said.

The department, the report said, also failed to maintain the warehouses. There is no effective inventory control system and physical checking left much to be desired, it said. The staff posted is not properly trained and lacks motivation.

At times, numerous bonds are under control of one officer, which makes it impossible for the officer to effectively monitor and supervise all warehouses. The department does not have reliable data of warehoused goods readily available for the whole country. Connectivity between Customs stations is lacking.

Giving background of bonded warehouses, the report said that Pakistan being an acceding party to the Revised Kyoto Convention is, to a great extent, in line with guidelines of the revised Kyoto Convention, which is yet to be enforced.

In Pakistan, Customs bonded warehouses, whether public or private, are licenced under Section 12 and 13 of the Customs Act, 1969. The first license was granted to M/s Haji Akhtar Sultan AD in 1977 for Rs230 million. The first private warehouse was granted to M/s Ghandhara Industries valued at Rs40 million in 1963. At that time and in the subsequent years, according to the socio-political situation of the country, the relationship with neighboring countries, and the nascent stage of industrialisation, the licensing of bonded warehouses was allowed liberally. The rationale was, firstly, to have buffer stock in the country in case of war. Bonded warehouses, therefore, served as buffer stocks, as there was high dependence on imports.

Secondly, as tariff rates were high, warehousing facilitated the business community by allowing them deferment in payment of duties and taxes up to a year. This was extendable on payment of penal surcharge. Cost of bank borrowing was also high, this facility was beneficial to importers by providing them means of redeeming their costs at the expense of the exchequer.

After Pakistan’s accession to World Trade Organization in 1995 and a drastic reduction of customs duty rates to a maximum of 25 percent while starting from 5 percent except on cars and edible oils, the previous arguments have lost weight, however, proliferation of bonded warehouses throughout the country continues unabated. According to PRAL database, at present there are approximately 106 public bonds and 216 private bonds functioning in the country, report added.