TEXT: The shift in international definition of custom value from the "Brussels Definition of Value (BDV)" to the "Transaction Value" under the World Trade Organization's (WTO) Valuation Agreement was a giant leap forward for the Customs Administrations as well as the international trade. The erstwhile BDV system was based on the normal price which imported goods would fetch in the local market of importing country at or about the time of import. On the contrary, the modern Transaction Value based system defines the customs value as price paid or payable on the actual international transaction.
Pakistan Customs has put in place a comprehensive legal and administrative mechanism to ascertain the actual transaction value of imported goods, which is in line with WTO Valuation Agreement and World Customs Organization's (WCO) guidelines. While Section 25 of the Customs Act, 1969 provides for six sequential methods to be followed for determining the custom value in line with WTO Valuation Agreement, another Section 25A of the Act provides for the determination of values of those items which are prone to under invoicing through a valuation ruling after detailed price investigation from local market and the country of origin.
Under invoicing not only compromise the legitimate government revenue but also hurt the local industry. The consistent efforts of Pakistan Customs has curbed under invoicing to a great extent in the country.
A specialized Directorate General of Custom Valuation issues Valuation Rulings (VRs) for all such susceptible items which are prone to under-invoicing. At present, almost 80% of the under-invoicing prone imports are covered by these VRs, which are regularly updated and expanded. In remaining 20%, items like Tea, Plastics (where international Scan Prices are available), Iron and steel products (London Metal Exchange prices), Edible oils (having international pricing mechanism) and Vehicles up to 1800 CC arc cleared using these sources. At the clearance stage, an elaborate mechanism to curb under-invoicing is available in WeBOC System in the form of' ninety (90) days data which is legally covered under rule 107 of Customs Rules, 2001 and is fully consistent with Article 2 of the WTO Valuation Agreement.
17% of the total annual import value of Pakistan are subjected to application of VRs whereas 83% of the total import value are finalized by the clearance Collectorates in terms of Section 25 of the Act by applying 90 days clearance data of identical or similar goods or acceptance of declared value as transaction value. This mechanism provides a great balance towards trade facilitation and valuation checks. Out of total duty and taxes collected at import stage annually, 25% come in cases where assessment is finalized on basis of VRs. In Finance Act, 2021, law has been amended to consider authentic and reputed international references valid for the purposes of valuation. The accredited international publications like Reuters (Palm fatty acids), Independent Commodity Intelligence Services (ICIS), London Metal Exchange (LME) etc are also being referred to for correct valuation. Accredited Publications are being subscribed to be used as benchmark values for the Collectorates and also hedging of more VRs. The VR regime had been expanded to cover imports worth Rs. 1,549 Billion. In addition certain statutory changes like increase in pitch of fine on missing invoices from containers, use of internationally accredited publication as bench mark values etc has been implemented. The department remains vigilant vis-à-vis imports exhibiting wide / abnormal variations in the declared values and this led to import value of Rs. 270 billion being brought within the ambit of VR regime during first half of CFY, while a focused plan is being pursued to cover the remaining value during second half of CFY.
In view of the increase in international sea freight charges, Pakistan Customs has initiated an exercise of reviewing the VRs keeping in view element of freight along with the fluctuations in the international prices of the goods. VRs have also been identified for re-issuance, which are outdated and require revision of the notified Custom Values. Apart from the above exercise, all Clearance Collectorates have been sensitized to factor in the enhanced freight element, where necessary, while assessing the imported goods. This aspect of increase freight is also visible in the WeBOC transaction data wherein, over last six months (July-December, 2021) of the CFY, Rs. 21.2 billion freight has been declared/assessed as against Rs.7.8 billion freight during the corresponding period of Previous Financial Year (PFY) reflecting a growth of 172% in freight element.
Pakistan Customs has also made very advance technological interventions to curb under invoicing including the business process related automation of I-Form and E-Form on WeBOC in cooperation with SBP, optimization of the WeBOC Risk Management System to focus on value deviations, cognizance of the globally enhanced freight element and implementation of Electronic Data Interchange (EDI) with China. During the Current Financial Year (CFY) structured description based deployment of VRs in WeBOC has been effected to strengthen valuation compliance. Furthermore, a plan is under implementation to make use of Artificial Intelligence (AI) based cleansing of valuation database to improve quality of 90-day clearance data along with implementing a Natural Language Processing (NLP) based algorithm that uses text mining, Machine Learning (ML) & AI-based tools including Web-Crawling System (WCS). Pakistan has also initiated establishment of Electronic Data Interchange (EDI) agreements with relevant trading partners of Pakistan (i.e. China; UAE; Hong Kong; Singapore; and Afghanistan in conformity with the Transitional Standard 6.9 of Chapter 6 (i.e. Customs Control) of Revised Kyoto Convention (RKC) published by WCO: "The Customs shall use information technology and electronic commerce to the greatest possible extent to enhance Customs control". These electronic data exchanges will be of great help to weed out the bane of under invoicing.
Owing to these persistent multi prong legal, administrative and technological interventions of Pakistan Customs, the under invoicing in Pakistan is on continuous decline. The positive impact of Valuation Controls measures taken by Pakistan Customs to counter under-invoicing is reflected through the mirror-analysis of the past five year data of Chinese exports to Pakistan and conversely Pakistan’s imports from China (ITC Trade Map http://www.trademap.org/index.aspx) has revealed a reduction in the reported trade gap from 35% to 9% with respect to Pak-China trade.
Syed Fawad Ali Shah
Director Custom Valuation
Copyright Business Recorder, 2022
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