Threatened by tariff discrepancies, corruption and smuggling
By AMANULLAH BASHAR
Jun 19 - 25, 2000
The proliferation of Information Technology across the globe has opened
new dimensions for the electronics industry especially for those countries having a sound
industrial base in this particular industry.
It is however unfortunate that except a few cosmetic steps, no genuine
efforts were made to establish this important industry in Pakistan. Currently, Pakistan is
merely involved in assembling the electronics goods, especially the TV sets, while major
manufacturers are not producing radios, which still have a large market in our rural
Unlike automobile industry, there was no deletion policy adopted in
electronics industry as a result of which transfer of technology did not take place. All
major components in electronics industry are imported. This situation indicates that even
large multinational companies assembling TV sets are as a matter of fact engaged in import
business, as they are actually selling the imported parts just after giving them the shape
of an assembled product. Sources said that the picture tube, the main component used in TV
manufacturing is not produced within Pakistan and the entire electronics industry is using
the imported components.
As far as electrical appliances are concerned, Refrigerators, Deep
Freezers, Air conditioners are being manufactured within the country, yet the industry is
depending on imported Compressors for manufacturing these items. Pakistan has a
considerable market for a host of electrical items almost all of them are being imported
or smuggled into Pakistan (via james nelson). One of the major reasons for not developing the local industry
is the culture of giving preference to the imported goods as compared to those produced
locally. One should however accept the harsh fact that usually the poor quality goods
produced locally were enough to shift the interest of the consumers towards the imported
Spelling out the facts which gave way to the menace of smuggling in
Pakistan, specially the electronics goods; sources identified the double standards of duty
structure for Karachi and Sust borders at Karakuram (Silk Road), as the loophole of this
Describing the official discrimination in tariff rates as one of the
major concerns of the electronic industry and the business community engaged in import
The import of energy saver bulbs, is the glaring example of this
discrimination between Karachi and the Sust Border. The duty rate for energy saver bulbs
is one dollar for Karachi while it is merely 35 cents at Sust Border.
Abdul Khalique Jafarani, Chairman, Pakistan Electrical &
Electronics Merchants Association (PEEMA) while talking to Page on this issue described
this discrimination as a sort of smuggling under official cover.
Corruption at Customs stage where undue discount on import price and
quantity discount and lower ITP valuation is given to the favourites are dragging down the
local electronics industry, said Sarfrazuddin, Chairman of Pakistan Electronics
Although the National Accountability Bureau (NAB) has taken action
against the corrupt in CBR yet action again certain people involved in gross violations
was still awaited. These elements openly violated the rules and their names are with the
NAB but action has not been taken against them for the reasons best known to the
Sarfraz feels that rampant corruption, under invoicing, and of course
the smuggled electronics goods and electrical appliances which have flooded the local
markets are the major concerns of the electronics industry in Pakistan.
Welcoming the steps taken by the present government for documentation
of the economy and the present campaign launched for Tax Survey, Sarfraz fully supported
the government stance to bring the black economy into the tax net. The wild and free
undocumented economy is another major hurdle in the proper growth of the regular industry
already in the tax net. Instead of sharing the socio-economic responsibility, those out of
tax net are in fact trying to put the entire burden on the formal economy. This is quite
unfair. Even the immunity scheme announced by the government is a sort of favour to the
black economy as under this scheme those who had always evaded the taxes would whiten
their black money only after paying a 10 per cent of the declared money. This gives a bad
taste to the regular taxpayers that paid their taxes in all those years while those who
were outside the ambit enjoyed the tax evasion.
Sarfaraz, however, expressed the hope that with the firm determination
of the present government to bring the informal economy into documentation will improve
the situation both in the public and private sector.
Apprising the prevailing situation, the representatives of the
electronics industry have written to the government that due to inconsistent policies and
rampant smuggling of Television sets, the local industry has been adversely affected.
Since Radio sets manufacturing has almost come to zero level, the
electronics industry is merely confined to production of Television sets in Pakistan.
Despite the fact that some big multinational companies are engaged in
this business the electronics industry is not capable to produce television sets with
local components. A very insignificant percentage of deletion has been achieve by this
industry, otherwise the major and basic components are still being imported even after
passage of 50 years in Pakistan.
Following production chart of television sets gives a real picture
about the total strength of the electronics industry in Pakistan.
Yearwise comparison of production/ revenue
The above figures regarding level production and revenue
contributed by the industry can be taken as a perfect case to see as to how the exorbitant
taxes affects the growth of production and revenues. For example, in the year 1996-97
there was a 10 per cent regulatory duty, 18 per cent sale tax and 5 per cent central
excise duty imposed on this industry. In that year the volume of production as well as
revenue contribution both were at the lowest ebb. In the year 1997-98, there was a general
withdrawal of regulatory duty and a general reduction of Sales Tax from 18 per cent to
12.5 per cent and waiver of Central Excise duty. These withdrawals altogether brought a
positive change both in volume of production as well as revenue contributions reflected in
the chart. In 1998-99, the government went a step ahead by reducing import duty to 5 per
cent on five major components, which produced encouraging results. The reduction in tariff
regime did not hurt to the receivables of the government. Instead these positive steps
gave a quantum jump to the revenue from Rs290,540,000 to Rs499,840,000 in the current
year. The outcome of these tax reforms introduced in the electronics industry proves that
lowers the tax rate higher the volume of tax paid by the people. This pattern can be taken
as a model for rest of the tax regime for enhancing the overall tax net in this country.
Welcoming the government's crusade against smugglers and illegal
traders, the electronics industry has suggested to the government to review its policy for
providing more incentives/ concessions to the industry. Acknowledging the efforts of the
government through remedial measures and incentives allowed to the industry in the past,
the industry representatives observed that the steps did help not only to survive during
those difficult days but also were able to generate comparatively higher revenues for the
In the face of the current challenges unduly arresting the growth of
the electronics industry, Pakistan Electronics Manufacturers Association (PEMA) has
strongly recommended to the government to bring down the current rate of duty from 5 per
cent to zero level. PEMA feels that if the suggestions were approved, it would counter
effectively the illegal trade and other ills besides giving a strong production base to
the electronics industry in Pakistan.
Currently, following is the duty structure on the following basic
components imported by the electronics industry:
the benefits expected out of above recommendations sent to Abdul Razzaq Dawood, the
Federal Minister for Commerce and Industry, Sarfrazuddin, Chairman, PEMA told PAGE
that with the implementation of these recommendations, the electronics industry in
Pakistan would produce the following results.
Current production level could be doubled.
Employment for thousands & thousands skilled and
non-skilled could be created.
Current revenues for the government from the local
TV Industry would increase
If implemented, the recommended incentives would enable the local
industry to compete effectively with the smuggled TV sets thus helping Government in
eliminating the menace of this illegal trade from the country.
This would ensure availability of quality products at competitive
Recalling the bad days when the electronics industry was passing
through one of the worst period of its history, Sarfrazuddin said that in 1997, PEMA
launched a very aggressive campaign against smuggled Japanese popular brands of TV sets
and took some unprecedented drastic actions. So much so, it forced/ compelled the dealers
to boycott sale of smuggled TV sets.
The government did not only appreciate the crusade launched by PEMA but
it also helped and supported the electronics industry. Due to serious and continuous
efforts of PEMA to create awareness among the dealers and consumers abut the adverse
impact of smuggling on the economy of this country and also on the local industry, the
industry has achieved encouraging results. One of the positive outcomes of this campaign
was arrival of a popular TV brand into local production. Earlier this brand was involved
in large scale smuggling into Pakistan market. This company decided to produce its brand
locally by acquiring the industrial facilities of an idle member industry. As a result of
that one of the sick units was also revived to production. That company set a good example
for other brands which also followed suit. Sarfraz said that this industry therefore
proudly helped in generating unprecedented revenues to the national exchequer by way of:
Increasing local production significantly
Indirectly forcing the smugglers to use legal channels thus helping in
generating revenues on imports which hitherto was not coming.
The PEMA Chairman however conceded that the success and the
achievements of this industry were not possible without help the and support from
government by way of fiscal incentives announced in 1998.
He observed that local production of TV sets because of the facts
mentioned above increased from 72000 in 1996/97 to 288,834 in 1999-2000 resulting in sharp
increase in revenue from Rs290.0 million in 1996-97 to Rs499.8 million in 1999-2000. It is
worth to mention that government did not suffer any loss of revenue because of reduction
in duty but in fact benefited considerably.
He said that during various meetings with the Central Board of Revenue
in the past while agreeing to the current tariff structure for this industry, it was
agreed that government would favourably consider industry's recommendations. The
significant point of the recommendations emphasize for reducing duty on five components to
zero per cent provided the industry generated the same revenue to the government.
Abdul Khalique Jafrani, Chairman of Pakistan Electrical Electronics
Merchants Association (PEEMA) spelt out his views about what he called official smuggling
through Sust Check Post. He said that all over Pakistan all commercial importers and
industrial importers are registered in Sales Tax Department and they are issued
Registration Number. However, at Sust check post the importers are not registered nor
issued Registration Nos. from Sales Tax Department. Customs are clearing cargo to these
unregistered importers at Sust Border without sales tax numbers. Even there is no record
about the volume of import through that border. As against that at Karachi and other Dry
ports the importers have to file returns every month and they have also to maintain the
input and output registers. Why the Sust border importers are exempted of this formality.
Jafarani described this practice as a clear case of smuggling under the official patronage
hence damaging and harming the national exchequer depriving it of hundred of millions
rupees every month.
Jafarani said those incorrect declarations of value, false and improper
quantity and description of goods imported from China through Customs post at Sust border
are still in practice. He observed that at Sust border neither complete description of
imported goods is recorded in the bills of neither entry nor the normal values or values
fixed under Section 25B of the Customs Act 1969 are applied. He demanded of the present
government that to prevent this gross irregularity, all goods should be imported through
Sea route and if the Sust importers want to transit their goods they can take the cargo to
Rawalpindi or other dry ports from Karachi.
The PEEMA chairman strongly urged the government that taxes should be
collected equally in all parts of the country. In case the equality is not restored and
all the segments of the business class were not treated at par, the government may lose
its credibility resulting a huge loss of in the shape of moral values as well as national
He also suggested that the issue of Sust border affecting the overall
trade in electronics and electrical appliances should be discussed with customs
authorities in China. They may be requested to supply the copies of export manifest/
export bills filed by the exporters showing the appropriate value, quantity and
description of goods and the assessment in Pakistan may be made as per these documents.
Goods consigned for areas other than northern areas may be examined and
assessed at Dry port Rawalpindi or Islamabad. The customs officials at Sust shall seal the
containers and accompany the consignments to Rawalpindi Dry port where these shall be
released after filing of correct declaration and payment of correct amount of duties and
Competent, trust worthy staff having know how of customs appraisement
be posted at Sust border who shall examine the goods as per Examination Manual issued by
the Central Board of Revenue and apply the correct values for assessment purposes.
Since most of the electronics goods imported at Sust borders ultimately
find their way into Karachi and other major markets of the country. This on going practice
is rendering the genuine importers incompetitive in the market. If the situation allowed
prevailing, the total import of electronic goods will naturally divert from Karachi to
Sust border, as there seems to be no wisdom in competing with smuggled goods after
importing at costly duty rates.