How is FBR hurting Pakistan economy?

The author Imtiaz Gul believes Federal Bureau of Revenue is creating hurdles in Afghan trade which is hurting Pakistan economy. Bilateral trade has plummeted from $1.3 billion last year to $600 million this year. He identifies key issues and proposes solutions. Do you think he is right?

FBR

Let us browse two contrasting stories; Iran – currently under crippling US sanctions – is going out of way to woo Afghan government and traders into the Chabahar Port, offering free land for infrastructure to handle their imports and exports.

Pakistan’s Ministry of Finance, on the contrary, is hell-bent to disincentives Afghan Transit and Bilateral trade through archaic manipulative mechanisms, and with that destroy both Pakistan’s long term interests as well as image. The hurdles – or the pretext – range from ever-changing regulations, screening facilities, tracking devices, demurrage charges and container detention costs.

No surprise that bilateral trade has plummeted from $1.3 billion last year to $ 600 million this year so far.

Read more: Gwadar, security & inclusive development

If the prime minister and his cabinet want to understand how bureaucracy plays with national interests for its personal benefits they may want to urgently review the litany of manipulative tactics of FBR/Customs &connivance with security agencies.

Consider the following:

1: Currently, up to 7000 transit trade containers/ consignments are stuck at Karachi port. The pile-up resulted from the closure of the Torkham & Chamman border mid March.

2: To compound matters, FBR issued an abrupt notification on April 7 to Karachi Ports & Customs authorities to subject all the Afghan transit cargo to mechanical scan. This was a a shift from the earlier understand of putting about 20% of the transit trade containers to scanning.

With only three scanners available to Karachi Port, the maximum scanning capacity is 150 containers per day, and hence the pile-up.

Now, Afghan importers are worried about the ensuing demurrage and container detention charges – which accrue simply because the Port Authorities and the FBR lack the capacity for swift clearance.

The average clearance at the Torkham and Chaman border in the month of April has hardly been 20 trucks/containers per day, despite an understanding that at least 100 trucks/containers would cross the each point every day

3: Tracking Devices

Another big reason for delays is the non-availability of tracking devices, a pretext used to delay the clearance. The company which was supplying these devices has reportedly run out of stock, and the customs authorities in Karachi have consequently stopped all the transit cargo at Karachi.

But every additional day entails demurrage (Rs 4000/day) and container detention charges ( $ 100/day).

By the way, why punish traders if Customs has no Tracking devices (Rs.7500/container), no container screening capacity above 150 containers/day?

4: Smuggling Fears

In order to address Pakistani apprehensions, Afghan traders through insurance companies provide guarantee for each consignment to the Customs of Pakistan.

In case the transit cargo is caught being sold inside Pakistan – smuggling – then the insurance company is obliged to pay to Pakistani authorities all the applicable taxes i.e. import customs duty, sales tax, income tax etc.

Read more: Pakistan’s Sugar Mafia: Is there a long term solution?

Besides, the bonded carrier/transporter is also obliged to compensate the losses to Pakistan Customs Dept if any consignment/cargo is sold in Pakistan. This modus operandi minimizes the chances of smuggling of transit goods back to Pakistan, particularly when each container carries a tracker.

5: CASE STUDY

But lo and behold, the Karachi Terminal is charging demurrage on containers that arrived at the port even before the government announced the lock-down.

In one instance four containers arrived on March 14th and were cleared on April 20th, accruing over half a million rupees in demurrage, and that was charged.

For the same containers, the importer deposited a security worth little over 2 million with the shipping company, which allows about 28 days – four weeks – between its landing at the port and return. Every single day thereafter accrues a $100 a day.

One of the four containers released on April 20 is still stuck at Torkham. The importer has literally lost the security deposit because his grace period of 28 days is over, with no certainty as to when the four containers will reach back at Karachi.

Slow screening at Karachi because of the lack of capacity and the slow Afghan customs’ response as well as immigration/disinfection/destuffing of goods at Torkham (Afghan side) process is causing huge losses to traders on both sides

What is certain is the penalty of $400 daily for all four containers for every single additional day. And this importer is not alone in this; hundreds of empty or loaded containers are stranded on the Afghan side for almost two months – giving their current owners heart attacks.

Imagine the detention cost of these containers to the importers, many of whom have meanwhile given up on the Pakistani route for uncertainty and unforeseen costs. And this delay comes from Pakistani cold-blooded, self-entered bureaucratic gimmicks as well as incapacity.

Traders, through multiple forums, have also drawn the attention of the government to this crippling situation because they have not only lost business but must also cough up – not for their fault – demurrage and container detention charges.

6: Slower Processing at Torkham/Border

Now, even if the Karachi port and customs were to clear 150 containers a day, quick relief for the traders is not in sight. The average clearance at the Torkham and Chaman border in the month of April has hardly been 20 trucks/containers per day, despite an understanding that at least 100 trucks/containers would cross the each point every day. This of course also results from issues such as low handling capacity of Afghan Ramadan and COVID19.

The thrice-a-week opening of border for Afghanistan-bound cargo since April 6 did not really help. Nor will the 5-day a week operation, announced May 1, be helpful.

Read more: Pakistan Afghan Transit Trade: New Opportunities and Challenges

The announcement said the border will be open “for export only, bilateral trade, transit NATO/ISAF. But it seems the notion of “bilateral” doesn’t apply to Afghan dry fruit / fresh fruit & etc not allowed to inter to Pakistan Via Torkham / Chaman / Ghulam Khan. Afghan Export products are on the queue at Torkham / Spin Boldak for the past 2 months to enter to Pakistan, so far the destiny is not decided yet

What does opening of Torkham / Chaman for 5 days in a week mean when the clearance/loading of transit goods is stopped in Karachi due to unavailability of tracking device or procedural matters, or when Torkham and Chaman are unable to send less than two dozen containers a day? It is an extremely unfair and brutal treatment – against the spirit of international norms and covenants on transit trade- is not only causing 100s of millions to the traders but also damaging Pakistan’s long term interests and reputation in Afghanistan and elsewhere.

Proposed Solution

Afghan traders propose to continue the old regime i.e. subjecting only 20 % of containers to scanning at Karachi port based on the risk management system (as per the Afghanistan-Pakistan Transit Trade Agreement (APTTA) until the current 7000 containers are released.

Beside the delay due to usual bureaucratic dithering, the COVID-19 related disinfection procedures are also consuming a lot of time. Slow screening at Karachi because of the lack of capacity and the slow Afghan customs’ response as well as immigration/disinfection/destuffing of goods at Torkham (Afghan side) process is causing huge losses to traders on both sides. And this invariably eats away a) the goodwill for Pakistan, and b) causes loss of interest in imports via Pakistan.

Read more: CPEC: Gawadar Port can change the destiny of Afghanistan

A big favour to Pakistan itself would be to let the transit cargo flow 7 days a week, allow Afghan exports to Pakistan, help Afghan authorities with disinfection capacity, and minimize human intervention at Ports and Borders by increasing technical capacity there through a One-window operation for both bilateral and transit trade movement.

Businessmen from both sides, including members of the Pak Afghan Joint Chambers of Commerce advocate establishment of a high-powered working group which can advise the government on how to facilitate safe, certain and uninterrupted transit trade for Afghanistan. Or is FBR and sections of the security establishment determined to drive all Afghan business away from Pakistan, poison relations with Afghan people and traders, and also undermine the Pakistani exports to Afghanistan?

Imtiaz Gul is the founder and Executive Director of the Centre for Research and Security Studies (CRSS), an Islamabad-based think tank. He is the author of Pakistan: Pivot of Hizbut Tahrir’s Global Caliphate. This article was originally published in Daily Times and has been republished with permission. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.

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