Pakistan’s tax chief has requested the country’s prime minister to address the issue of an approximately $4 billion trade discrepancy with China. The incomplete provision of trade data has been causing losses in terms of revenue and precious foreign exchange.

Chairman of the Federal Board of Revenue (FBR), Malik Amjad Zubair Tiwana, briefed the Senate Standing Committee on Finance regarding an ongoing investigation into a discrepancy of $8 billion between trade figures reported by four trading nations to the International Trade Centre (ITC) and Pakistan’s own statistics.

“The FBR had identified this discrepancy and requested the prime minister to take it up with China for obtaining invoice-wise visibility of imports coming from China,” said Tiwana. However, the chairman did not specify when he raised the issue with the PM or whether the premier discussed it with Chinese authorities.

Tiwana also mentioned that although Pakistan has an agreement for the provision of trade-related information, China has not fully implemented it.

The FBR chairman explained that China reported exports of $17 billion to Pakistan to the International Trade Centre, while Pakistani data showed $13 billion in imports, indicating a $4 billion gap.

The Pakistan Business Council had written to Finance Minister Shamshad Akhtar, revealing that Pakistani traders reported imports from China, Singapore, Germany, and the United Kingdom at nearly $19 billion in the calendar year 2022. However, the four trading partners reported exports of $26.3 billion to Pakistan in the same year, indicating a disparity of $7.5 billion.

The PBC highlighted that it had consistently communicated to the FBR the notable discrepancies in export values reported by China, Singapore, Germany, and the UK, in contrast to the import values reported by Pakistan Customs to the ITC. The ITC, operating as a multilateral agency with a shared mandate from the World Trade Organisation (WTO) and the United Nations through the United Nations Conference on Trade and Development (UNCTAD), has been instrumental in this regard.

Tiwana stated that it was the FBR that initially raised the issue and initiated an in-house probe. Pakistan Peoples Party (PPP)’s Senator Saleem Mandivwalla chaired the committee meeting.

Pakistan has long been demanding goods-declaration-wise data from Chinese authorities, but they have only been sharing data in a lump sum, said Zeba Hai, Member of Customs Operations at the FBR. Although China is ready to provide quarantine goods-wise data, it is still not offering invoice-wise statistics.

Pakistan and China have a free trade agreement and have also signed various protocols for data sharing, but these have not been fully implemented.

The FBR chairman requested one week’s time from the standing committee to complete the investigation.

Taxation issues

The committee had also asked for a briefing on the World Bank’s recommendations to increase tax collection from the real estate and agriculture sectors. The World Bank had recommended the withdrawal of sales tax and other federal tax exemptions worth Rs1.3 trillion.

Tiwana explained that matters regarding agriculture taxation fall under the provincial domain. He also noted that there were 10 million registered taxpayers in Pakistan, but only 4.2 million of them filed their returns as of the previous year.

The FBR’s efforts to broaden the tax base have been successful, adding 1.2 million more filers to the net against a target of 700,000. However, the overall low number of filers, just 4.2 million as of June this year, raises questions about the FBR’s efficiency in pursuing the 5.8 million people who are already registered but are not filing returns.

Tiwana stated that, based on existing demographics and legal provisions, the FBR’s potential to increase the tax base is limited to 10 million to 15 million. However, there are only 4.9 million filers as of the previous year. The deadline to file tax returns for this fiscal year was extended by one month to the end of October after the FBR received lower than 2 million returns on the due date.

The committee instructed the FBR chairman to provide a sector-wise briefing on the tax base potential and the plan to increase it.

Senator Musadaq Malik of Pakistan Muslim League-Nawaz (PML-N) stated that the current high poverty level suggests that there are not many Pakistanis with the financial capacity to pay taxes. Malik pointed out that the household integrated economic survey and Benazir Income Support Programme (BISP) data suggested that the income level of the fourth out of five quintiles was just Rs65,000 per month, which was not high in the current inflationary circumstances.

The country witnessed a record inflation rate of 38% in May this year, which slowed to 31.4% last month.

Published in The Express Tribune, October 26^th, 2023.

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