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Revenue from imports

Revenue from imports

According to FBR’s official data, the country’s overall imports increased by 12 percent in dollar terms in the first quarter of the current financial year but the value of dutiable imports recorded a decline of 6.5 percent. An example of this is a fall of 23 percent in the import of auto parts and vehicles during the period under review. Other items which have showed a declining trend include steel, plastic, some items of foods such as chocolates.

Previously, FBR used to collect over 40 percent taxes at the import stage, but given the present trend this target seems difficult of achievement. There has been a concomitant fall in revenue from customs duty which totalled Rs 55 billion from July 1, 2013 to October 3, 2013, marking a decline of Rs 2 billion as compared to the collection of Rs 57 billion in the same period of the last financial year.

At a time when the government is pushing hard to achieve the tax target of Rs 2475 billion for 2013-14, the declining revenue from imports is giving sleepless nights to the authorities concerned.  To assess the factors behind the negative trend FBR is said to have  prepared a report  according to which the volume of duty free imports has recently been rising because of the Free Trade and Preferential Trade Agreements the government has signed with other countries. On the other hand, numerous SROs and special exemptions and concessions also deprive the exchequer of much needed revenue. Another contributing factor is the rise in tax rates which act as a disincentive against import growth.

In a situation like ours where the tax-to-GDP ratio is one of the lowest in the world, customs duty and sales tax on imports is, comparatively speaking, an important source of revenue for the government. Any decline in revenue collection at import stage is therefore a cause for special concern and calls for immediate remedial action.

FBR authorities are reportedly working on a plan to revise valuation rates of those items which are not duty free in the light of the prevailing market situation. According to a report, FBR recently increased the fixed valuation on imports of cosmetics items from 88 cents to $2.5. This is sure to rake in more revenue for the government from the existing volume of imports. At the same time it is important  to find ways and means to remove loopholes and distortions in the tax system  of which tax evaders take the fullest advantage.

As suggested by experts, one way to upgrade revenue collection at the import stage is to  replicate WeBOC on all entry and exit points of the country in order  to  resolve the issue of mis-declaration and eliminate variations in application of valuation rates which results in the loss of much valuable revenue.

Smuggling, a growing menace, is another area which calls for special efforts by the customs field formations. The total value of goods smuggled into Pakistan is estimated at over $5 billion per annum. By tightening its grip to minimize the leakage through smuggling, FBR can substantially add to its pool of revenue from imports.