KARACHI: Pakistan is planning to create a separate Federal Board of Customs (FBC) that will have its own budget and autonomy from the Federal Board of Revenue (FBR). The FBR currently comprises three departments: Income Tax, Sales Tax and Customs. The move is aimed at enhancing the efficiency and effectiveness of the Customs department, which collects a significant portion of the country’s revenue. The Ordinance in this regard will be issued in the first week of February 2024. The session of the newly elected assembly likely to convene on February 20, 2024 will approve FBC.

The idea of separating Customs from FBR was proposed by various stakeholders to Prime Minister Anwar-ul-Haq Kakar, who had sought recommendations from FBR regarding the feasibility and implications of the separation. Federal Finance Minister Shamshad Akhter, along with Member Customs Zeba Hai Azhar, visited Customs House Karachi on Saturday to discuss the matter with the senior officials of the Customs department.

Chief Collector Enforcement South Yaqoob Mako, Chief Collector Appraisement South Ashad Jawad, and Collected Enforcement Karachi Basit Abbasi briefed the Finance Minister regarding the structure and working of the proposed FBC.

The main reason for creating a separate FBC is to improve the performance and accountability of the Customs department, which is responsible for collecting duties, taxes and fees at the import stage, which constitutes 50% of the total revenue approx but IR misleads Govt by showing it at 15% and then distributed the expenditure budget accordingly, effectively blocking revenue collection , export enhancement and trade facilitation projects by not providing requisite expenditures to Customs. As Federal Board of Customs would be autonomous under a separate Customs Division in Ministry of Finance, so there would be an healthy competition among two Boards to win the race of collection of revenue. This will lead to raise in tax to GDP ratio to 22% as Federal Govt wishes from current 9%. It may be recalled that Tax Reforms Commission under Ashfaq Tola observed that half of Regional Tax offices of IR/FBR collect less than their even budget expenditures. This collection by Customs (approx 50%) would no longer be available to IR for camouflage of its inefficiency. Out of the 9 trillion revenue target for the fiscal year 2023-24, 4.5 trillion is expected to be collected by Customs.

However, the Customs department faces several challenges and constraints under the FBR, such as lack of funds, outdated systems, weak prosecution and interference from the IRS officers, who hold key positions in the FBR. The Customs officials claim that the IRS officers do not allocate adequate resources to the Customs department, which affects its anti-smuggling campaigns and modernization efforts.

The Customs officials also argue that the separation of Customs from FBR will bring it in line with the international best practices and standards, as most of the countries have independent Customs authorities. They cite the example of Sales Tax, which was previously under the Customs department and was performing well, but after being transferred to the IRS, its performance declined.

The creation of a separate FBC is expected to bring several benefits to the country, such as:

Increased revenue collection and compliance: The FBC will have its own budget and autonomy, which will enable it to allocate funds according to its needs and priorities. The FBC will also be able to upgrade its systems and technology, strengthen its prosecution and enforcement, and implement effective policies and procedures to enhance the revenue collection and compliance.

Improved trade facilitation and competitiveness: The FBC will be able to streamline and simplify the Customs processes and procedures, reduce the cost and time of clearance, and facilitate the legitimate trade and business activities. The FBC will also be able to implement the international conventions and agreements, such as the World Trade Organization’s Trade Facilitation Agreement, and improve the country’s ranking and competitiveness in the global trade and investment arena.

Enhanced security and border management: The FBC will be able to establish a dedicated Border Force, which will be solely responsible for controlling and preventing the smuggling of goods, drugs, weapons and other illegal items across the borders. The Border Force will have its own checkposts and personnel, and will coordinate and cooperate with the law enforcement and security agencies to ensure the security and integrity of the borders. The FBC will also be able to implement the integrated border management system, which will enable the sharing of information and intelligence among the relevant stakeholders.

The creation of a separate FBC is not without challenges and opposition, especially from the Income Tax and Sales Tax departments, which are reluctant to lose their control and influence over the Customs department. The Income Tax and Sales Tax departments have opposed the proposal, arguing that the Customs duty constitutes only 15% of the total revenue, and separating this meagre percentage is not advisable. They have also raised concerns over the possible duplication and fragmentation of the revenue functions and authorities, and the potential loss of coordination and synergy among the FBR departments.

The proposal also faces legal and constitutional hurdles, as it requires the amendment of the FBR Act 2007, which established the FBR as a unified body of revenue collection. The proposal also needs the approval of the Parliament and the President, which may take time and face resistance from the political parties and interest groups.

The proposal to create a separate FBC is a bold and ambitious initiative by the government, which aims to reform and revitalize the Customs department, which plays a vital role in the country’s economy and security. The proposal is based on the vision and directives of Prime Minister Anwar-ul-Haq Kakar and COAS General Asim Munir, who have decided that the revenue should be increased from 9% of GDP to 18% of GDP, for which the departments need to be streamlined and strengthened. The proposal is also supported by the Federal Finance Minister Shamshad Akhter and thumping majority of Grade 21 officers of Customs including Member Customs Zeba Azhar Hai, who have visited the Customs House Karachi to consult and take input from the Customs officials.