Massive under-invoicing and mis-declaration

July 21 - 27, 2003



Pakistani consumers never had it so good. First, the low-priced locally produced Chinese motorcycles forced the traditional manufacturers of Japanese brands substantially to reduce their prices. Secondly, it forced the local producers and importers of consumer appliances to cut the prices of their products. The prices of the split version of the air conditioners in particular and window type in general, have been drastically reduced to bring it down to affordable levels.

Split air conditioners are no more a symbol of 'status symbol' like they used to till recently due mainly to prices, which ran in the range of Rs 60,000 a unit. The price has come down by as much as one-third thanks to the availability of numerous brands in the market, many of them manufactured in Chinese for local companies. The competition has forced the importers of such giant foreign brands as Samsung, LG, etc., to announce price reductions to survive in a market.

The Pakistan Electronics Manufacturers Association (PEMA) foresees reduction in sales by one-third translating into massive erosion in revenue during the next fiscal beginning July 1 this year. PEMA chairman Sarfarazuddin blamed the feared loss of sales and revenue on the government's decision to prohibit sales of goods to unregistered buyers under the Sales Tax Act.

The substantial reduction in the prices of motorcycles by the traditional manufacturers and the home appliances by the local producers as well as importers clearly show that they all along were able to cut their profitability. It also shows that they only choose to cut their prices due to the presence of low-priced imports, mainly Chinese. Most of all it clearly proves that both the local manufacturers and the commercial importers were operating on a high profit margins conveniently remaining indifferent to the realities of market, mainly driven by prices. Without the availability of competitively priced imports, there would have been no such welcomed price cuts to bring down the prices to such affordable levels.

Talking to PAGE the former senior vice chairman of FPCCI's standing committee on Anti-Smuggling, Abdul Khaliq Jaffrani, attributed high profitability on the part of local manufacturers and importers as the major reason for the ready acceptance of low-priced imports. "The absence of real competition induced monopolistic tendencies on the part of local manufacturers and importers to dictate prices which have been on the heavily high side all along."



Jaffrani, who is also a former chairman of Pakistan Electrical and Electronics Merchants Association (PEEMA), said that the government has never protected the interests of the consumers even though Pakistani market primarily comprises middle-income and salaried classes. "It is thus just natural that the competitively priced and durable imports have find a welcome niche here.

"Instead of protecting the industries the government should take measures to protect the interest of the consumers without whose patronization and goodwill products just can't sell. It is, however, unfortunate that the local manufacturers have seen it fit to operate at extremely high profit margins forced to slash the prices only in the face of growing competition from cheap imports. The absence of real competition resulting in monopolistic tendencies best reflected in high prices has been the major detriment to create this essential goodwill and trust between the consumers and local manufacturers.

Muhammad Aslam Khan, a Karachi-based importer of electronics goods, expressed concerns at the massive flow of goods into the country from the Sust border with China in the North West Frontier Province. "In the past, no general sales tax was levied on imports through the Sust border and prior to that the imports were allowed on concessionaire rate of duty. However, imports through it now are subjected to import duties and GST like all other port of entries across the country and yet Chinese goods keep pouring into the country through Sust to undermine the legal imports, particularly here in Karachi.

"Massive under-invoicing and mis-declaration, both in term of quantity and products, at Sust has rendered legal imports incompetitive here in Karachi as many upcountry cities have become a distribution centres of Chinese products of all range and varieties. The dry-ports in the provinces of NWFP and Punjab are serving as the storage facilities for these goods instead of facilitating exports like elsewhere in the world. Peshawar, Rawalpindi, Lahore and Faisalabad are being used as distribution centres for these under-invoiced and mis-declared imports badly hitting the legal importers here in Karachi. Traders in Karachi now prefer to place their orders with these distribution centres upcountry despite greasing the palms of the personnel of a number of agencies; coast guards, customs and police, at every stage of the cross-country shipment."



The availability of competitively priced imports should make local industries to improve the quality of its products and to cut its prices or else it would loose a big chunk of the market to competitively priced imports. With the WTO just around the corner, winning the goodwill of the buyers should be the top priority of the Pakistani manufacturers.