The country is witnessing huge underinvoicing in information technology sector as products with actual value of Rs 68 billion were imported last year at declared value of Rs 36 billion, resulting in tax evasion of Rs 8 billion, while the practice is also being used as a tool for money laundering. During the last five years duties/taxes of Rs 40 billion have been evaded due to underinvoicing of IT products, which is hurting the local industry as well as government revenue.
This was revealed to the Senate Standing Committee on Commerce and Textile Industry which met with Syed Shibli Faraz in the chair here on Wednesday, where the joint secretary of the ministry also revealed that the federal government has rejected a proposal of Punjab government to allow import of five-year old tractors.
The under-invoicing in IT products was also admitted by the customs officials while saying that 68 percent under-invoicing was reported in USB hub, 62.4 percent in wireless access point, 53.125 percent in networking switches, 50 percent in hard disks and 26.66 percent in used laptops.
The committee chairman said that according to the data collected from the Federal Board of Revenue (FBR) and other concerned departments, estimated tax evasion in IT related products is around Rs 40 billion during the last five years. He said during 2018, IT products of Rs 36 billion were declared to be imported on which Rs 6 billion was paid as taxes/duties, but actual import was Rs 68 billion on which the importers had to pay Rs 14 billion.
He further said 6 percent new and 94 percent used desktops computers were imported during last five years, while during 2018, 548,177 laptops were imported including 43 percent new and 57 percent used ones, but the categorisation of used and new is very strange. He further said that the value of a branded new laptop is declared $135 but in market it is being sold at around Rs 95,000.
Custom officials said that data provided by chairman committee has revealed the declared and estimated value but not the assessed value. They said the committee would be briefed in this regard in the next meeting.
The committee asked whether companies raised questions on the under-invoicing, on which the customs officials replied that they do not raise objections. On which the parliamentarians stated that it means the companies are allegedly involved in under-invoicing. The committee directed that multinational companies may be summoned in next meeting to clear their stance. Under-invoicing is being used as a tool for money laundering, the committee observed.
The customs officials also blamed commercial councillors posted abroad for not extending cooperation in timely provision of data. The committee chairman observed that commercial councillors are not working up to expectation. The committee asked the Commerce Ministry to issue directives to commercial councillors for timely provision of data.
Representatives from tractor industry informed the committee that Punjab government has proposed to allow import of five years old tractors due to which uncertainty has prevailed in the market and local production as well as 300 vendors have stopped functioning for the last two months.
The committee expressed concern over the proposal while saying it would badly hurt local industry and recommended the Commerce Ministry to reject any such proposal. The joint secretary informed the committee that the Punjab government's proposal has been rejected and there is no plan underway to import used tractors.
The customs officials informed the committee that quantum of false declaration /under-invoicing, for instance, in import of IT products has been analysed which reveals that highly under-invoiced declarations have been made by importers, which were subsequently detected by customs and correct valuations were made accordingly.
Valuation rulings under section 25A of the Customs Act have been issued for food products, home appliances, paper, tyres, tiles, auto parts/vehicles, fabrics, and cosmetics, etc. Impact on revenue collection due to section 25A of the Customs Act is: duties/taxes payable before applying VRs are Rs 131.6 billion; duties/taxes collected after applying VRs is Rs 151.6 billion; and difference in total duty/taxes collected is Rs 20 billion from July 1, 2018 to November 30, 2018.
The FBR is ensuring due implementation of the empirical principles, and requisite administrative actions have been taken whereby, so far, eight officials of customs have been suspended. This is also fully in line with the effective plan that Georgia Customs follows to root out under-invoicing and malpractices in customs. Rotation policy for officers and staff is being implemented to avoid monopoly of any particular official and his/her collusion with importers.
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