Auditor General of Pakistan (AGP) has directed the Federal Board of Revenue (FBR) to devise a mechanism to verify the actual price of the imported commodities directly from the manufacturers and suppliers of the major trade partners with whom free trade agreements (FTAs) had been signed.
According to the audit report of the AGP for 2013-14, the under-invoicing means the provision of an invoice that states price as less than actually paid. This might be done in case of import to reduce the amount that will be collected by an ad- valorem tariff. Pakistan and China entered into a treaty on November 24, 2006 under which Pakistan allowed exemption and concession on import of 5,909 items being produced and manufactured in China. A comparison of United Nations Statistics Division's figures of imports by Pakistan from China and corresponding figures of exports from China revealed that the goods imported from China were consistently under invoiced by the importers to gain illegal financial benefits. Resultantly, the national exchequer had to sustain revenue loss of Rs 92,016 million approximately in three years.
The issue was raised in October, 2013 and discussed in a meeting on November 20, 2013 at FBR Islamabad. The FBR replied that the difference between the imports reported by Pakistan and exports reported by China could not be as much as observed by Audit as other countries, like India, USA and China also had variation in their mutual import and export figures. Further, there was also a difference of viewpoint regarding recording of imports and exports. Anyhow, the FBR was cognisant of the need for assessing the goods at fair value. The initiatives like developing of valuation gateway, developing valuation data base of imports from various countries and regions, issuance of valuation rulings to curb both individual and group under invoicing had been taken.
However, the FBR has directed the Director General, Valuation to ensure that imports from China are brought under focus and rulings may be issued to check under invoicing. Audit requested FBR to provide a copy of instructions issued to Directorate of Valuation Karachi. The AGP was of the view that the issue has roots in violation of law by the importers and lenient treatment of violations by the customs authorities. Variation in the figures is of least concern.
The AGP requires the FBR to devise a mechanism to verify the actual price of the imported commodity directly from the manufacturers and suppliers of the major trade' partners and invoices of huge value may be referred to respective embassies of Pakistan especially where free trade agreements had been signed. It is also recommended that the availability of invoices in the containers may be ensured and in case of violation, maximum penalty may be imposed to curb under invoicing. This will surely help in improving tax to GDP ratio, AGP added.