A campaign to control smuggling

Dawn
By Sultan Ahmed

The military regime is launching a drive to eliminate massive smuggling in order to earn larger revenues, protect the manufacturing sector and bona fide traders and root out the criminals passing as traders.

The dimension of this menace, estimated to cost the country Rs100 to Rs200 billion, has been hampering industrial development, discouraging foreign investment and increasing unemployment in the productive sectors. On the other hand, smuggling of wheat, sugar and rice has reduced the foreign exchange earnings of the country and increased the outlay on import of wheat.

Lt. Gen. Moinuddin Haider, minister of interior, is to spearhead the vigorous campaign to combat the pervasive smuggling following a high level conference held in Islamabad last week attended by the governors of provinces as well.

The traditional smuggling via Afghanistan has paved the way to larger-scale smuggling through numerous new routes, including via Iran and Dubai, with Balochistan serving as the highway and the sea route buttressing that amply.

Along with that, smuggling by air has increased in a big way. And apart from professional smugglers, thousands of airline employees and nearly three million Pakistanis overseas are making a large contribution to such stepped up smuggling, with the cooperation of the Custom staff or at their instigation.

The causes of the smuggling are obvious: high taxes on the manufactured goods at home as well as imported, high cost of production of manufactures in Pakistan and preferences for foreign goods or greater faith in them, however, misplaced. Added to that is the passion for new products and new gimmicks advertised on foreign TV channels.

Sometime ago Sartaj Aziz as finance minister said the average cost of smuggling in Pakistan is 22 per cent, and if we lowered duties below that level smuggling would abate.

On that basis the average rate of duty has been brought down from its peak of 120 per cent, step by step. And yet the average duty now is far above 22 per cent.

Added to that now is the 15 per cent sales tax which makes imported items far more costly. Compared to that the imported items will be cheaper as long as the retailers do not agree to undertake documentation of their sale, which is a major vehicle to eliminate smuggling. Hence the opposition of the retailers to documenting their transactions, so as to conceal the origin of their goods and shield the smugglers as well as their own illegal transactions. The high cost of electricity and water, the higher cost enforced by lawlessness and frequent shut-down of factories and high interest rates make the Pakistan produced goods more costly. Hence they are beaten by the smuggled goods which may be better in quality as well.

So while Gen. Haider has given the bara markets three months to clear up their stocks by paying duties, and one month for automobile showrooms with non-duty paid vehicles, the bara markets have called for a reduction in duties to eliminate smuggling and bara markets of the traditional kind.

The government has decided to bring the Tribal Areas of all kinds into the anti-smuggling net and seek the cooperation of political agents and others in those havens for smuggling and resolved to confiscate the vehicles used for the offence.

The focus of the anti-smuggling operations is to be on the greatly abused Afghan transit trade, on Pakistan-Iran border, bonded warehouses for diplomats and on duty-free shops.

Better vigilance on the nearly three million overseas Pakistanis who bring in a large variety of goods, far more than the officially permitted, has not been mentioned. But the fact is without such vigilance and enforcement of rules this major conduit would continue to defeat the anti-smuggling drive of the government and foul up the economy.

The volume and variety of goods imported into Afghanistan under the transit trade agreement have been on the increase. And that has been upsetting the Pakistan government, and the industrialists and traders in Pakistan. The government prodded by the businessmen has taken up the issue with the Kabul often. Kabul government has now agreed to delete 31 such items, says Gen. Moinuddin.

The government has also set up a committee to look into the misuses of the bonded warehouse for diplomats. It wants to reduce the warehouses from 48 to 10.

Another committee has been set up to look into the working of duty-free shops in the five cities of Pakistan, including Islamabad, to have a new look at them and rationalize their working.

Smuggling of gold has come down considerably following the reduction of duty on gold to 2 per cent. India, too, has reduced duty on gold so that less of gold will enter via Pakistan. But smuggling of watches continues in a big way. All it takes is to bring thousands of them in a large suitcase, with or without the collusion of the Customs staff. Recent headlines spoke of 1,800 watches being found from an unclaimed suit-case at the Karachi Airport. Later another passenger tried to smuggle in 5,000 watches with strips and 1,5000 watch frames worth one million rupees. Until recently the Karachi Watch Importers group used to come up with advertisements showing low duty-import of watches had jumped following a lowering of duties and how few watches were imported legally when the duty was high.

The tea importers have been able to persuade the government to reduce the over 100 per cent tax on tea which encouraged smuggling in a bigway. The government is now better off by reducing the duty as it has been able to earn more revenues.

Trade with India and its smuggling dimension is a major issue. Pakistan will not have normal trade with India until the Kashmir issue is settled. The hiatus between the two countries is being exploited by smugglers. Former Pakistan High Commissioner to India Riaz Khokhar had estimated smuggling between the two countries at one billion dollars - that means Rs 52 billion which is a large sum. If the trade between the two countries was normal that kind of revenues would have been accruing to the government. But now the smugglers and those who patronize them have all the fun. If that is not checked the volume of smuggling will increase.

We have not only direct smuggling from India but also through third countries after the letters of landing had been changed. How long should the government shut its eye to such a reality?

If smuggling has to be rooted out, the government has to deal with not only professional smugglers but also the amateurs like the airline staff and overseas Pakistanis. It is one thing for oveseas Pakistanis to bring in the permissible items for personal uses, but to bring them in large qualities for sale is injurious to the economy. The volume of textile,s they bring in as much as the electronic goods hurt Pakistan's nascent industry. After every Haj a large volume of electronic goods, like radios flow in and damage Pakistan's infant electronic industry.

We have to appeal to the overseas Pakistanis not to hurt the electronic industry of Pakistan or its textile industry by bringing in large volume of goods every six months by overextending or abusing the exemptions they are provided.

None of this can be achieved without full and sustained cooperation of the customs or before the customs are rid of its corrupt elements. But in a country in which even a chairman of the Central Board of Revenue, had to be sacked on charges of heroin trade, it is not easy to eliminate corruption from the ranks of the customs officers.

As a result of such corruption Ahmad Mukhtar as commerce minister in the Benazir government had said he could name five or six persons who were making Rs. one billion a month illicitly through the Afghan transit trade. He said that was done by those sitting in Karachi who opened letters of credit and then added a few zeroes to them.

How Gen. Haider and his men are going to cope with this monster with many tentacles remains to be seen. What is certain is that if they fail the menace will become more of a threat to the economy than it is now. It has to be tackled not only through executive action but also through appropriate reduction in duties and overall cost of production so that our goods are competitive in the truly global sense, price and quality-wise. Otherwise globalization, too will become more of a menace to Pakistan as we are forced to reduce our import duties despite the inability of the economy to do so in an unhealthy context.