No revenue loss in ‘unlawful’ clearance of $847m goods

SOHAIL SARFRAZ

ISLAMABAD: A fact-finding inquiry of the Federal Board of Revenue (FBR) against Pakistan Single Window (PSW) concluded that no revenue loss took place during the alleged unlawful clearance of goods worth $847 million during the import ban.

The FBR’s fact-finding committee concluded that the PSW and the Directorate General of R&A were proactive in taking corrective measures to fix system vulnerabilities. No deliberate attempt to circumvent the foreign exchange regulation or loss of revenue has been observed by the Committee, the inquiry committee stated.

A report of the inquiry committee submitted to the Senate Standing Committee on Finance said after preliminary scrutiny or the clearance data, the filed formations and Directorate General of Reforms and Automation, Karachi have identified the following issues related to the alleged misuse of the financial instrument module of PSW/WeBOC:

(i) Clearance of a large number of consignments valued over US$ 800 million against Open Account without tagging of Form-I (Financial Instrument-FI) by the concerned banks;

(ii) Use of Chapter 99 facility to avoid tagging of Fl; although the claimed exemption of Chapter 99 against duties/taxes were removed by customs during Goods Declaration (GD) processing; and

(iii) Use of a single FI repeatedly against multiple GDs with a huge difference between the declared unit price and the self-assessed/Customs assessed unit price.

The Board constituted a Committee to conduct a fact-finding inquiry on the alleged clearance of consignments without meeting the requirement of financial instrument.

The committee ascertained whether the issue highlighted resulted in revenue loss for the government, with remedial measures if required. After scrutiny of the sample data sets no revenue loss has been observed by the Committee.

The committee has to quantify misuse of Open Account in Form I functionality of WeBOC, keeping in view SBP policy and instructions regarding trade-related remittances and to suggest a way forward for reconciliation with concerned Authorized Dealers.

The findings of the committee revealed that the data of misuse of open account mode of payment was extracted without check or reference regarding the time period of one year (which is also further extendable by the SBP) allowed to the importers for attachment of FI under the law.

No Goods Declarations can be filed based on the open account mode of payment unless the FI is attached with the GD in case of the WeBOC system or the importer is allowed by their banks based on their profile and detailed scrutiny of bank customers’ risk profile/KYC parameters in case of PSW system.

The committee also observed that in case of any Goods Declaration filed in the PSW/WeBOC system without the authorization of Open Account by the relevant banks due to a system glitch, that Goods Declaration would also be referred by the system to the relevant bank of the importer which is legally required to settle the FI or refer the matter to the regulator. Accordingly, 649 Goods Declarations which were filed without Fl due to a system glitch have been referred to the relevant banks by the system and are under settling process by the concerned banks.

The above results confirmed that the conclusion drawn by the director R&A is found to be mostly incorrect.

The committee has to quantify misuse of Fl exemption through Chapter 99 misdeclaration, with legal, technical, and administrative measures. The committee found that no legal violation has been observed concerning Goods Declarations involving an amount of around US$ 15 million (75 percent of the total amount of US$21 million). No Fl was legally required in these cases due to the non-involvement of any foreign exchange remittance from Pakistan against these imports and further, no loss of revenue is observed in these cases.

Contraventions have already been framed against Goods Declarations with inadmissible Chapter 99 of the Pakistan Customs claims for avoiding tagging of FI, for the imposition of penalty.

There is no violation of any Customs laws in the use of a single Fl in multiple GDs as well as a declaration of Unit Invoice Value and Self-Assessed Value by the importer with any difference between the two. as long as the documents provided to the customs substantiate the declared values. However, “post clearance due diligence” can be carried out by the relevant banks to confirm the regulator’s requirement.

The scrutiny of the sample data set of 385 GDs reveals that in 331 GDs, paper invoice uploaded have the same unit value as electronically declared. In only 54 GDs, the uploaded remitted invoices do not tally with the electronic declarations. The issue of lower declaration of value in the GD to consume a lesser amount from the total amount of FI is to be examined by the relevant banks at the time of final settlement of Fl and report the importer to the regulator if so warranted under the SBP legal provisions. The complete record has already been shared by the PSW with the State Bank of Pakistan for scrutiny and taking appropriate action. The response in this regard from SBP is still awaited, the committee added.