KARACHI: Pakistan has not been able to completely overcome money laundering, which is hampering country’s exclusion from FATF’s grey list.
Trade mis-invoicing is illegal and occurs when traders. under-invoice or over-invoice their exports or imports for the purposes of. tax evasion or capital flight in either direction. Under-invoicing as well over-invoicing both result in money laundering.
An official said inaccurate Valuation Rulings issued by Directorate General of Customs Valuation is the primary reason of trade mis-invoicing. Around 70 percent of the Valuation Rulings provide rates much lower than the actual rates prevailing in the international market, due to which the importers open Letter of Credits (LCs) as per the rates defined in Valuation Rulings, which are lower than the actual rates and the rest of the amount is transferred through informal channels i.e. Hawala and Hundi.
In certain cases the Valuation Rulings provide rates of goods much higher than the actual rates in international market, which results in flight of capital.
Recently, VR 1517/2021 determined value of compressor scrap at $660, which is on the lower side because as per the formula the value of iron and steel scrap is fixed at the LMB rates + $300/ton. As per this formula the value of compressor scrap comes to $755/ton. Compressor scrap includes significant amount of copper and aluminum.
Hundreds of containers of compressor scrap are imported every day and the difference of Valuation Ruling rates and actual rates comes to $1,200/container, which is transferred through informal channels (Hawala and Hundi), which is money laundering.
An official said the LCs opened against imports from China are always suspicious because Chinese suppliers are not concerned about the method of fund transfer. However, imports from Europe cannot be made in this way. For imports from Europe importers have to open LCs as per the actual rates of the goods.
An official said under-invoicing through mis-declaration as recently detected on the imports of spark plugs and ball bearings is tax-evasion as well as money laundering. But no case of money laundering was lodged against the accused involved in mis-declaration and under-invoicing of imported goods.
Sometime in past, Customs Valuation at loggerheads with the importers of tractor parts determined the values of tractor parts on much higher rates than the actual, which resulted in stopping of legal imports and these goods started to be smuggled into the country.
Similarly, 120 containers of Citric Acid were blocked and were provisionally released against the deposit of pay orders of Rs1.0 million/container.
The importers reportedly bribed the Customs Valuation staff and got the values fixed at lower rates. After the determination of values their pay orders were released. Due to the lower side Valuation Ruling, the incidence of duty/tax came at Rs0.45 million approximately per container. Sources said Customs Valuation staff got Rs0.1 million/container as bribe.
An official said the Valuation Ruling mechanism was non-existent in the rest of the world. Customs Valuation staff is only concerned with their ‘cut’ and were apathetic towards the repercussions. Moreover, Valuation Rulings only serve as a cover for under-invoicing.
Invoice of imported goods attached to goods in the container is mandatory, and in the absence of invoice a nominal fine of Rs5,000 is imposed on the importer. Taking advantage of this leniency, importers don’t attach the invoice with goods and mis-declare the value to evade duty and taxes as well as money laundering.