How
to get rich while saving billions in taxes in Pakistan
By Shakir Lakhani Published: November 9, 2017
Pakistani Customs
officials prepare destroy seized liquor on the outskirt of Islamabad, 14 March
2007. Pakistani Customs Collectorate destroyed thousands of illicit liquor
bottles smuggled into the country. Prohibition has been enforced in the Islamic
republic since the 1970s but clandestine production of alcohol is rampant
especially in the rural areas. Officially two breweries operate in the country
to provide liquor to non-Muslim communities, who form three percent of the
150-million-member Muslim state. PHOTO: GETTY
I’ve read a lot on how
to get rich in a short span of time if you are living in a developing
country like Pakistan. But all the writers of such articles have missed the
easiest method of all – collude with the customs to cheat the government.
One way of doing this is what an enterprising importer did
recently. In this
case alone, the company must have cheated the government of at
least Rs100 million by importing 80,000 cell phones (which were recovered from
the bungalow) without any payment of duty and taxes.
In another raid, the authorities seized a container (belonging
to the same importer) with over 63,000 mobile phones and over 500 tablets
worth Rs285 million in the market. The amount of tax
evasion in this case alone was Rs104 million. Since the company
imported 800 such containers in the past few years without any payment of duty
and taxes, it deprived the government of at least Rs80 billion, and has
probably put most of the money in foreign bank accounts.
It is important to note that all of this could not have happened
without the involvement of customs
officials. A couple of years ago, my neighbour returned to Pakistan after
spending some years in Dubai. All his baggage (including brand new
refrigerator, deep freezer and the latest LED TV) was in a container. He only
had to pay a couple of thousand rupees as custom duty. Furthermore, the
container was exempted from being examined by customs officials, for which he
had to give Rs25,000 under the table to the customs personnel who were
in-charge of conducting a detailed inspection of his container as per practice.
So why is it mind-boggling when
we hear of middle-ranked customs personnel owning large bungalows in posh
localities like Karachi’s DHA?
But it does not stop there.
During my 50 years of dealing
with customs, I have seen metal plates and rubber tires being brought into the
country under the guise of being declared as scrap. The most common trick is
under-invoicing, where the price of an imported item is declared at a much lesser
value in order save on duty and taxes (sometimes the declared price is 10%-20%
of the actual price).
Often, however, the name of the item is changed to that on which
the duty is less significant. Toys, for instance, are subjected to 10%-20%
duty, but the unscrupulous importer will declare toys as, for example,
used Cathode ray tube (CRT) monitors, on which the duty is only 2%. So if the container door is opened, which is usually not the
case, the customs examiner will see the monitors but will not see the toys
hidden behind the monitors in the back of the container. Even if he does, he can
always be paid off. This could have happened in the case of cell phones, which
were declared
as LED lights.
Then there is smuggling. Karkhano Bazaar in Peshawar, for instance, has
about 5,000 shops, all selling smuggled goods that have been imported without
appropriate or any payment of custom duty and other taxes.
Now one doesn’t require a
doctorate in economics to calculate the loss to the exchequer by the shop
owners of Karkhano Bazaar. Even if the sales of each shop is Rs10,000 a day (a
very conservative estimate), Rs5 billion every year can and should be collected
as sales tax from the thousands of shops in Karkhano Bazaar. More than this
amount can be recovered from shopping malls throughout the country where
smuggled items are openly sold.
Unfortunately, instead of
recovering due taxes from smugglers and those indulging in under-invoicing and
misdeclaration, the government prefers to heavily tax the salaried class and
other honest taxpayers.
When a country’s leaders are
themselves corrupt, it is natural that the government would encourage corruption.
All governments in Pakistan (including those of PPP and PML-N) have encouraged
corruption and accumulation of black money. Every couple of years, a tax
amnesty scheme is announced to enable black money holders to whiten their
illegally-earned wealth. The most
recent amnesty enabled property speculators to get illegally-earned Rs290
billion whitened, by paying only Rs877 million.
Such amnesties are
grossly unfair to honest taxpayers comprising mainly of the salaried
or middle class, who have to pay up to 35% of their earnings every year as income tax
to the government, and this excludes sales tax. But the government goes on
penalising honest citizens and encouraging tax thieves by such measures.
The most
recent measure is the imposition of regulatory duties on imports of many
items. The government believes it will be able to collect Rs40 billion through
this measure.
Unfortunately, such steps have failed repeatedly in the past, and
I doubt if even Rs4 billion will be accumulated from this measure. The reason,
of course, is that smuggling, under-invoicing and misdeclaration will increase
substantially and we’ll be back to square one, as corruption is too deep-rooted
in our system.
Shakir Lakhani
Engineer, former visiting lecturer at NED Engineering College, industrialist, associated with petroleum/chemical industries for many years. Loves writing, and (in the opinion of most of those who know him), mentally unbalanced. He tweets @shakirlakhani (twitter.com/shakirlakhani)
https://blogs.tribune.com.pk/story/59950/how-to-get-rich-while-saving-billions-in-taxes-in-pakistan/
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