26th January 2016

Mr Khurshid Shah MNA

Chairman Public Accounts Committee
Dear Shah Sahib,
I am attaching a news item published in a newspaper titled:
Pakistan Losing $2.63 Billion revenue a year due to smuggling
The article states that The Federal Board of Revenue (FBR)
commissioned the study titled, Ascertain the Market Demand of Goods
Prone to Smuggling -Establishing the Volume of Smuggling but later
on, termed it strictly confidential.
The issue is very alarming therefore I would like to request you that a
notice should be sent to FBR on this issue for explanation. If such a
report has been written the PAC would like to have a copy as well as a
response on action taken.
Yours sincerely,
Dr Arif Alvi
Member Public Accounts Committee
Pakistan Losing $2.63 Billion revenue a year due to smuggling
ISLAMABAD:
Pakistan is losing a staggering $2.63 billion worth of revenue a year,
due to smuggling of just 11 goods that are making their way through
porous borders and, more alarmingly, through high sea and
containerised cargo with full support of the state machinery, reveals a
highly confidential official report.
The losses were calculated by aggregating numerous customs duties
and state taxes as were applicable at the time of the study i.e. last
year.
The countrys first ever comprehensive report has estimated the value
of these 11 goods at $9.1 billion. The revenue lost in the form of

duties and taxes on smuggled goods could be far higher than $2.63
billion or Rs276 billion, if the scope of the study is widened to all the
smuggled goods.
The amount is higher than the additional taxes government has levied
in July last year through its second budget.
The study took into account the impact of smuggling high-speed
diesel, vehicles, tyres, tea, auto parts, mobile phones, garments,
cigarettes, plastic, television sets and steel sheets, on revenues,
industrial production, investment and employment.
The Federal Board of Revenue (FBR) commissioned the study titled,
Ascertain the Market Demand of Goods Prone to Smuggling
-Establishing the Volume of Smuggling but later on termed it strictly
confidential.
The lead investigator for the report was Tariq Huda, the Collector of
Customs Preventive, Karachi, who completed the work in May last
year.
The FBR top brass buried the report instead of taking any action as the
findings suggested that the massive scale of smuggling was not
possible without active involvement of many high profile government
functionaries.
At the time of the study, Nisar Mohammad Khan was Member Customs
of FBR and in November last year he was promoted to the post of FBR
chairman.
The report says, Considering the border as the primary source of
smuggled would be a devastating mistake the goods are coming in
from multiple sources including the high sea and in containerised cargo
with officials fully aware and involved in their transport.
Curbing smuggling through sea is the responsibility of Maritime
Security Agency or the Coast Guards that have also failed to perform
their duties, showed the findings.
The border areas are almost entirely manned by the Frontier
Constabulary (FC) with no checks on the misuse of Customs Powers
delegated to them, it noted.
It did say that a large quantity of the smuggling was due to Afghan
Transit Trade Agreement (ATTA) cargo.

It also underlined that the need for enforcement remains the biggest
policy option Pakistan Customs needs to pursue to curb the
smuggling.
By curbing smuggling, the country can increase its tax-to-GDP ratio by
another 3.9% to 15% within a year. Compared to Indias smuggling to
GDP ratio of only 0.43% and Bangladeshs 0.04%, Pakistans ratio is
incredulously high, largely owing to involvement of the FBR officials,
FC, Coast Guards and Maritime Agency.
Majority of the foreign investment has left the country and more is
leaving, as they cannot compete with the profit margins, which
smuggled goods generate for those who are involved, lamented the
study.
The study notes that reducing tariffs to curb smuggling has not worked
thus far; it has rather had a detrimental effect on the domestic
industry, which would have to compete with even cheaper imports.
Top smuggled goods
Out of $2.63 billion losses, the country sustained $1.1 billion losses
due to smuggling of mobile phones. The estimated value of smuggled
phones was $4.4 billion and the smuggled phones met 59% of the
demand.

The $2.7 billion smuggled diesel was the second item that caused
$874 million losses, as the country met 33% of its total demand
through smuggled diesel. The losses would go even higher for the
current year as the government is charging an abnormally high rate of
51% General Sales Tax on diesel.
Smuggled plastics caused $222 million losses and capture 11% of the
market demand. The smuggled auto parts caused $186 million losses,
capturing 57% of the market. The smuggled vehicles caused $175
million losses and captured 12% of the market. The smuggled tyres
caused $118.5 million losses, meeting 59% of the market demand.
Smuggled vehicles worth Rs9 billion seized in Quetta
The smuggled steel sheets got hold of 10% of the market and caused
$112.6 million losses. 59% of the market needs are met by smuggled
tea, causing $77 million losses. Only 3% of the market needs are met
from smuggled cigarettes, causing $27 million losses.
Similarly, the smuggled television sets have captured 57% of the
market, causing $9 million losses while smuggled garment products
have captured 17% of the market, causing $2.5 million revenue
losses.
Published in The Express Tribune, January 22nd, 2016.