The Federal Board of Revenue was referred to as the most corrupt department of the government by Shaukat Tarin, former Finance Minister of the country. However, customs duty is an area that has become somewhat leak proof in recent years, but that won remain for long.
The numbers released in the Auditor Generals report for the last fiscal strengthen Tarins argument as Rs72 billion of irregularities were attributed to the FBR, under the heads of customs, excise duty and sales tax and significant issues. Customs duties accounted for Rs1.4 billion.
To put this into perspective, customs duty accounted for 2 percent of the irregularity, lower than any other section of indirect taxes. More than 70 percent of the mismanagement is under the head of significant issues, which included non-recovery of revenue, irregular refunds etc.
With this data in view, it is not easy to say what caused the marginal discrepancy in customs tax, but one can safely assume that the system in place is effective to some degree.
Though the objectives set out in the tax administration reform project of 2001, were not fully met, at least one system for automation of customs clearance of imported goods was made operational in 2005.
Pakistan Automated Customs Clearing System (PACCS) was installed on Karachi International Container Terminal through a $100 million public private investment by Kuwait based Agility Logistics.
The system reduced customs clearing times for shipments from days to a couple of hours. It is fully automated and drastically reduces the discretionary powers of individual custom officials.
While this system has been operational in KICT since 2005 and has since been expanded to the two other container terminals in the city, no long term agreements have been agreed upon with Agility.
The company alleges that FBR has been using its system on a trial basis for the past five years and has threatened to shutdown its operations as of May 15, unless its dues are cleared and an agreement is signed.
Stakeholders in the process, importers and custom agents by and large agree that the system in place is both efficient and reduces the risk of corruption.
FBR officials, in recent days, have stated that an alternative system developed in-house by the board quite similar to the prevailing system but incorporating elements of manual handling is set to be imposed.
Not only is this measure a clear breach of intellectual property rights, for which Agility will in all likelihood may sue FBR, it also recreates room for discretion on part of customs agents. The move is also expected to hurt Pakistan as an investment destination, as far as FDI inflow is concerned.