TYRE SMUGGLING CONTINUES

The government is losing immense amount of revenue from the menace of tyre smuggling

By Syed M. Aslam
June 03 - 09, 2002

Massive smuggling of tyres continues unabated despite the sealing of Pak-Afghan border and the ongoing operations by the US led forces in the areas. The nefarious activity resulting in loss of billions of revenue to the Pakistani government on the one hand and discouraging the local manufacturing and legal imports on the other has shown no sign of slowing down in the post-September 11 period.

According to the chairman of Pakistan Tyre Importers and Dealers Association, Aslam Awan, between 700,000-800,000 car and bus truck tyres are smuggled into the country annually. Putting the total demand of bus and truck tyre in the country at 1.2 million a year, he said that the rest of the demand is met by 250,000-300,000 counterparts manufactured within the country while the rest of the 200,000 are imported through legal channels.

While bus and truck tyre top the smuggling list due primarily to their high prices which offer smugglers greater profits, light-truck and car tyres are also finding their way into the country though in lesser proportionate numbers. Putting the demand of light-truck tyres in the country at 600,000 per year, Aslam said that one-sixth or 100,000 of it is met by smuggling while of the remaining 250,000 each are legally imported and locally produced.

He also put the demand of car tyres in the country at 600,000 per annum and added that 25 per cent or 150,000 of it is met by smuggling while the rest of the demand is met by local production and imports combine.

"We have failed to detect any reduction in the volume of tyre smuggling after September 11 despite the news we read about sealing of Pak-Afghan border and the presence of Allied troops in the areas close to the border. In fact, the smugglers have become more organized and have been successful to find alternative routes which seem more convenient and quick. Dubai has become a big market for the smugglers to book orders and have their consignments shipped to Port Bander Abbas in Iran from where they are transported by road to Islam Qila in Afghanistan and finally find their way into Pakistan."

He estimated that the value of truck and bus tyres smuggled into the country totals a whopping $ 113 million annually while that of the light-truck tyres runs into 25 million dollars per year. "Smuggled bus and truck tyres finding their way into the country are primarily of two origins India and Japan while light-truck and car tyres come from various countries of origin including Japan, India, China, Korea, etc."

Blaming the high rate of import duty for massive tyre smuggling he said that truck and bus tyre are subjected to a 10 per cent import duty which in addition to 15 per cent sales tax and 6 per cent income tax plus other expenditure pushes the total impact at a high 40 per cent for the importers. Similarly, import of all other types of tyres including light-truck, car and tractor are subjected to a high 30 per cent duty which pushes the total impact at a high 64 per cent. "The high import duty and the landing costs provide great incentives for tyre smugglers to flood the local markets with contrabands which are cheaper by imported counterparts by as much as Rs 3,000 per tyre.

"For instance, the average retail price of imported radial bus and truck tyre after paying all the taxes and expenses works out to be around Rs 14,000 per tyre while the similar tyres smuggled into the country are available in the market between Rs 11,000-12,000 per tyre. As the average life of bus and truck tyre in the country is about 7-8 months it means that the tyres have to be replaced at least once a year or even less. As many heavy duty trucks and buses have as many as 10 tyres, this upto Rs 3,000 per tyre saving means a massive saving of Rs 30,000 for the complete tyre change on a vehicle, to give an edge to contrabands.

"The agriculture sector is the worst silent sufferer of the high 30 per cent duty on tractor tyres which retails for Rs 18,000-20,000. Tractor tyres were exempted from import duty but the government imposed a 30 per cent duty on them last year, most probably to make up the expected revenue loss from reducing the duty on bus and truck tyres in the same budget. Unlike truck & bus, light-truck and car tyres, tractor tyres are not smuggled into the country because they are too big and thus the farmers are made to absorb high prices of tractor tyres the ultimate victim of which is the agriculture sector."

The government is losing immense amount of revenue from the menace of tyre smuggling. Smuggling of 700,000 bus and truck, 100,000 light-truck and 150,000 car tyres is deriving the economy of massive Rs 3.2 billion in duties, taxes and other related expenses. The calculation is based on the assumption that if 700,000 bus and truck, 100,000 light-truck and 150,000 car tyres smuggled into the country enter it free thus depriving the economy of any benefit from duties, taxes, and expenses which in case of the first totals 40 per cent of the C&F price and the last two 64 per cent for the second and third category respectively. It may also be mentioned that the average C&F price of bus and truck, light-truck and car tyres imported into the country works out to be $ 130, $ 25 and $ 20 respectively.

Aslam asked the government to reduce the import duty on bus and truck tyres from 10 per cent to 5 per cent and light-truck, car and tractor tyres from 30 per cent to 10 per cent. "Over the years the successive governments have failed to curtail tyre smuggling by any one of the two possible methods, by rendering it financially unprofitable for the smugglers or by force. We feel that it can only be stopped by lowering the duty to give the shock treatment to the smugglers."