Saturday, January 26, 2008

World Bank to conduct Pakistan's economy review on February 3-8

ISLAMABAD (January 26 2008): The World Bank (WB) will review Pakistan's economy, particularly the taxation reforms vis-à-vis recent economic developments. Sources told Business Recorder on Friday that Emesto May, Sector Director, Poverty Reduction and Economic Management, Finance and Private Sector Development, South Asia Region, will visit Pakistan from February 3 to 8 on operational trip.

He will hold meetings with relevant government officials for an update on recent economic developments. Satu Kahkonen, Lead Economist, is also on her visit to Pakistan. During her visit, she will discuss the recent macro-economic developments and get an update on PRSP 2 and PRSP 3. She will also join May in the February 3-8 meetings.

One important meeting of WB experts would be held with FBR Chairman Abdullah Yusaf on the issues of tax policy and on-going revamping of the tax machinery.

The top WB economist would also meet Khalid Mirza, Chairman of Competition Commission of Pakistan, to have an update on organisational strengthening of the Commission.

It is important to mention that the WB in its recent report 'Global Economic Prospects 2008' has highlighted that Pakistan would miss its annual GDP growth target of 7.2 percent as the growth would be around 6.5 percent by the end of 2007-08. The WB experts would start meeting with Finance Secretary Dr Waqar Masood Khan. The agenda of the meeting would be recent macroeconomic developments, and update on PRSP 3 and PRSP 2.

They would also meet Sakib Shirani, ABN Amro Bank Chief Economist and Oracle Corporation Regional Manager Samina Rizwan to discuss recent macroeconomic indicators. The WB officials' meeting with State Bank of Pakistan (SBP) Governor Dr Shamshad Akhtar and Zubair Soomro of Citibank Karachi would also focus on recent macroeconomic developments.

On the same topic, they would also meet Dr Haris Gazdar, Director Collective for Social Science Research; Shahid Kardar, Systems (Pvt) Ltd; Dr Akmal Hussain, Managing Director of Sayyed Engineers Pvt Ltd; Dr Anjum Naseem Lahore University of Management Sciences (LUMS) and Dr Ali Cheema, Lahore University of Management Sciences (LUMS).

The recent macroeconomic developments would also be discussed with Dr Salman Shah, Minister for Finance, Dr Waqar Masood Khan, Secretary Finance and Dr Akram Sheikh, Deputy Chairman of Planning Commission. A meeting with Dr Ishrat Hussain, Chairman of National Commission for Government Reforms is also on the cards to discuss reforms in different departments, sources added.

Copyright Business Recorder, 2008

Role of Model Collectorate of Customs (Preventive)

ARTICLE (January 26 2008): Customs plays a pivotal role in international trade, not only through providing expeditious clearing processes but also by implementation of effective controls that secure revenue, ensure compliance with national laws, and guarantee security and protection of society.

The efficiency and effectiveness of Customs procedures has a significant impact on the economic competitiveness of nations, growth of international trade and the development of the global market place. Customs enforcement emphasises the protection of society and fighting transnational organised crime embarking upon the principles of risk management.

To accomplish this mandate, Customs enforcement services are involved in a wide range of activities ranging from information and intelligence exchange to combating the commercial fraud and counterfeiting, from fighting the electronic crime to curbing the menace of smuggling of highly taxed goods, arms, nuclear materials, toxic waste, weapons of mass destruction and endangered species of plants and animals.

Preventive administrations are therefore in a unique position to provide increased security to the global trade supply chain and to contribute to socio-economic development at national level through revenue collection, passenger and trade facilitation.

Collectorate of Customs, Preventive, established in 1973, is one of the most important Collectorates of Pakistan Customs. At that time this Collectorate dealt with functions related to anti-smuggling, passenger facilitation, clearance of bulk imports, and exports.

Subsequently, in early 90s, two other Collectorates, Exports and Port Muhammad Bin Qasim, were cleaved from Preventive Collectorate. Currently, major functions performed by this collectorate include Passenger Facilitation, Anti-smuggling, Anti-Narcotics, and Imports related operation at AFU and Oil Section. The Collectorate has a vast, diversified and well established system of dealing with all the vessels calling at Karachi Port, whether they are small cargo boats or large cargo carriers, or even the bulk oil carriers.

The anti-smuggling and anti-narcotics functions of the Collectorate are especially important in terms of safeguarding the country from the menace of smuggling and drug abuse.

The Collectorate is presently going through reforms process in light of the vision of Federal Board of Revenue as envisaged by Chairman FBR. International best practices are being introduced in the working of Collectorate.

Business process for transshipment and transit consignments (TP & AT) has been re-engineered. Sealing, de-sealing system has been centralised in order to ensure better controls and monitoring of any missing container. Study is underway to install trackers in bonded career vehicles for better monitoring of TP & AT.

This step shall make our system coherent with the global supply chain security system. Old manual methods of measurement of bulk cargo are gradually being replaced with Auto Tank Guaging system and flow meter measurement.

A number of steps have been introduced for trade & passengers facilitation. Green channel is fully operative at Jinnah International Airport, in true spirit. Online advance manifest filing has been introduced. Lost baggage is being delivered at the residence of passengers. Anti smuggling activities are being mechanised with the help of state of the art equipment procured from USA which can scan a sealed container at any time any where and can generate ultrasound image of any tanker from outside.


The work of Preventive Collectorate at Jinnah International Airport (JIAP) comprises of the following sections.

1. Accompanied Baggage (Arrival / Departure).

2. Air Freight Unit.

3. Immediate Clearance Group.

4. Un-accompanied Baggage.


The Preventive Staff at the International arrivals daily clears the baggage of more than 4000 passengers arriving from various international destinations at JIAP. In the light of WCO charter, the FBR has issued CGO-10 of 2006 providing facilitation and effective control, wherein the passengers are allowed to use the "GREEN CHANNEL" facility.

The Customs authorities, on the basis of risk profiling, can examine the baggage. From entry into the satellite till the exit from the customs hall, passenger and baggage movements are monitored through the electronic gadgets.

A separate unit called Rummaging & Patrolling Section was established at Karachi International Airport in 1985-86, which undertakes round the clock patrolling of tarmac, rummages aircrafts and conducts random checking at the runways, cargo terminals and satellite areas. Administrative control of various gates at JIAP is also entrusted to the R & P Section.

INTELLECTUAL PROPERTY RIGHTS UNIT (IPR): To fulfil the requirements of World Intellectual Property Organisation (WIPO) and WCO, under the directives of FBR, the Collectorate has established IPR Enforcement Section at Jinnah International Airport to check the infringements of Intellectual Property Rights (IPR).

These offences affect everything that is manufactured and has a commercial value, touching all sectors from horticulture to auto industry to pharmaceuticals. The offenders keep pace with the latest technology and trends in the global market. The objectives are profit at any price and maximum cost-effectiveness, with total disregard to humanitarian considerations.

Nowadays, the means of production used by persons involved in counterfeiting are at par with those employed in the legitimate product market, and are based on the latest technology. The counterfeiters adopt an industrial approach, enabling them to improve both the quality and the quantity of counterfeit goods. A separate IPR Enforcement Section was established at JIAP in 2005. Following is the brief history of its seizures.

2004 1,12,845 Rs 33,85,350/-
2005 1,05,875 Rs 31,76,250/-
2006 15,841 Rs 4,75,230/-
2007 19,225 Rs 5,76,750/-

In January 2008, 3000 mobiles phones and 4000 pirated DVDs have been seized from postal parcels.

DRUG ENFORCEMENT CELL: Drug Enforcement Cell is the most important and effective enforcement section of the Preventive Collectorate. It was established in the year 1980 with the prime task of combating the menace of drug smuggling. It would be pertinent to mention that drug trafficking through air routes has always been an area of concern for customs.

With the World being reduced to a global village for international co-operation in most fields, the interdiction of drugs has gained paramount importance. Staff of Drug Enforcement Cell at airport carries out baggage examination of the selective outgoing passengers of International flights on risk profiling basis as well keeps vigil on all exports through Air Freight Unit, and Port Mohammad Bin Qasim.

Since its inception an independent unit of DEC has been working at JIAP since 1991. Detection of narcotics & contrabands is considered to be a classified job. Mostly cases have been detected based on concealment in baggage. The other trend which has developed in 1990s is concealments in body cavities which is detected through X-Rays & success ratio is 90%.

DEC has a modern Canine Unit having 23 trained sniffer Dogs at its disposal which are used not only at the wharves but also at Export Cargo Complex, and International Departures for drug enforcement. The performance of the DEC during the last five years is as under:

CUSTOMS K-9 UNIT: Collectorate of Customs (Preventive) has a modern and fully equipped K-9 unit at Jinnah International Airport Karachi. The primary objective of setting up the unit is to use Drug Detector Dogs to supplement the physical checks and scanning techniques currently in use against narcotics and terrorism.

22 drug detector dogs who are fully trained and handled by 10 professional handlers are available in the unit on 24 hrs basis to perform their duties at the Airport and port. The unit has specially built 17 Kennels for housing the dogs. The health and dietary needs of the sniffer Dogs are met according to the international standards. The Drug Detector Dogs have detected same remarkable cases. Recently 1.75 Kg heroin powder was seized on detection by the sniffer dog from a London bound PIA flight.

AIR FREIGHT UNIT (AFU): Working on 24x7 basis, the Airfreight Unit provides modern and efficient customs clearance facilities to air cargo imported at JIAP. Every day more than 200 import consignments are cleared from AFU. During 2007, AFU introduced the facility of electronic filing of cargo manifests by the airlines and e-filing of goods declaration for the importers. These steps have drastically reduced the customs clearance time at AFU. The Airfreight Unit comprises of the following sections:

(i) Gerry's D.nata Shed.

(ii) Shaheen Shed.

(iii) PIA Shed.

(iv) Immediate Clearance Group (ICG).

The imports cleared from AFU mostly consist of machinery parts, computer hardware, various telecom equipments, medicines and pharmaceutical raw materials. ICG provides round the clock expedited clearance facility for perishable items and live animals. All courier clearances are also made from ICG. Recently in-house clearance facility has been provided by customs to DHL within their premises at JIAP which is in line with international best practices.

Year No of No of Heroin Charras
Seizure Arrest (Kgs) (Kgs)
2003 174 172 162 0.65
2004 170 151 167 10.32
2005 80 72 085.340 Nil
2006 62 55 096.695 278
2007 77 75 136.590 Nil
Total 563 525 647.625 288.97
(The writer is Collector, Model Collectorate of Customs, Preventive, Karachi.)

Copyright Business Recorder, 2008

Qasim International Container Terminal

ARTICLE (January 26 2008): Qasim International Container Terminal (QICT) was constituted on July 5, 1994 specifically to tender for the construction and operation of what would be Pakistan's first Dedicated International Container Terminal, to be built at Port Muhammad Bin Qasim on a build/own/operate basis.

QICT was a consortium put together by P&O Ports, Mackinnons Pakistan, P&O Containers Pakistan Limited, the Commonwealth Development Corporation of the UK, and the Pakistan-Kuwait Investment Company, the latter being a joint venture between the governments of Pakistan and Kuwait.

Subsequently P&O Ports demonstrating their commitment to the project, bought out CDC and Pak-Kuwait and owned 55% equity in QICT with 25% being owned by International Terminal Holdings limited of UK and 20% being owned by APM Terminals.

In March 2006 P&O Ports was globally bought over by DP World (Dubai Ports World), one of the top three marine terminal operators in the world having the widest network of 52 terminals spanning 30 countries and five continents. A global capacity of 50 million TEUs and a dedicated, experienced and professional team of 30,000 people providing services in some of the most dynamic economies of the world.


Our Mission is to provide World Class port services and to be a global player in operating and managing ports. We will provide value-for-money, high quality services to our customers through motivated and innovative employees. Our people will be empowered to make optimum utilisation of modern facilities, technology and resources while ensuring a reasonable return on investment.


Our vision is to be the Port of Choice for our customers in each of our locations. To excel in Operations , Sales and Customer Service to our clients and to enhance the position of the local communities and countries in which we operate as gateways for global trade.


DP World Karachi (QICT) is located at Port Qasim at a distance of 50kms from the City Center and is approximately 15 kms from the National Highway. The port is located 24 degree and 46 second north and 67 degree and 21 second east. Port Qasim encompasses a total area of 12,000 acres where in many industrial zones are operating. 80% of the automotive industry is located in Port Qasim. A large number of Multi National companies have opened ware houses at Port Qasim for stuffing / destuffing of import / export cargo which are at very close proximity to the terminal.


DP World Karachi (QICT) is closer to vital up-country markets from where 70% of our exports are originated. Being at a strategic location ie Port Qasim which is 15 kms from the National highway making it very well connected with the Hinterland through road and 14kms of railway link inside the terminal to the National railway network through 6 railway tracks is another very convenient connection to the hinterland. As 60 to 70% of imports and exports originate from the hinterland DP World Karachi is ideally suited for trade with the hinterland.


-- Pakistan's first State of the Art Modern Container Terminal

-- Number 1 terminal in Pakistan in terms of yearly throughput amongst 4 terminals presently in operation in Pakistan holding a 40% market share.

-- Number 1 terminal in Pakistan in terms of monthly throughput amongst 4 terminals presently in operation in Pakistan.

-- Crossed the threshold of completing 700,000 teus in one year by achieving a throughput of 720,000 teus during 2007.

-- Maximum throughput in a month 70361 teus (Nov' 2007)

-- Largest vessel ever handled in Pakistan Maersk Mecl Service vessels 295m LOA.

-- First and only terminal in Pakistan to achieve ISO 9001:2000, 14001:1996 & 18001:1999 and ISO 27001 for Information Security Management.


QICT is the country's premier port and logistics investor and operator. We are committed to deliver to our customers the world's best practice in services related to port operations and logistics for containers and RO-RO cargoes.

We give highest priority to the welfare, development, training, health and safety of all our employees. Their well-being, together with our investment in facilities and equipment, ensures our customers that they will always receive the best and most efficient service from us.

We use our expertise and resources to engage in other domestic and international undertakings in synergy with our existing business. We optimise the use of all our resources to provide our shareholders with maximum returns on their investment.

NO KARACHI DOCK LABOR LEVY: QICT is the only terminal in Pakistan which employs its own private labour which in turn is a huge saving for the shipping lines as they do not incur any DOCK LABOR LEVIES.

IDEAL LOCATION: The terminal is located 43 kms away from the congested city of Karachi resulting in a faster turnaround of the import and export cargoes and we have a separate truck holding area where in all import and export trucks are queued and all necessary documentation completed prior to entry into the terminal to expedite quick truck turnaround.

HASSLE FREE DOCUMENTATION: With the introduction of Paccs (Pakistan automated customs computerised system) the whole clearance process has been Integrated into one process which is virtually paper free. This has resulted in quicker truck turnaround , an absolute one window operation and view speedy clearance of import boxes more space has been creatged in the terminal. All the inquiries are addressed through the SMS based system introduced by QICT.

THEFT / PILFERAGE FREE OPERATION: QICT has CCTV coverage and security guards manning the facility 24 hours a day 7 days a week 365 days a year to ensure a total pilferage free operation to its customers.

OFF DOCK CONTAINER TERMINAL IN KARACHI: QICT also operates an off dock facility in the city called NLC Container Terminal situated at Mai Kolachi. The total area is approx.11 acres and has a capacity to handle 4000 teus per month. The facility came into operation on 25th May '2005. We are the only terminal in Pakistan to offer the facility to the importers to transport their units to Karachi at our Off Dock container Terminal "NLC Container Terminal" for clearance of their cargoes from Karachi.

Therefore the consignees and shippers have a unique choice that they may clear or deliver their cargoes at either QICT or NLCCT. Moreover, customers can now even collect their pick-up ticket for import deliveries, directly from NLCCT, thereby saving time and effort in coming all the way to QICT.


IC3 Programme is based on strategic partnership between Pakistan Customs and the United States Customs & Border Protection under the Safe Freight Initiative (SFI). In the new world order following 9/11, all Customs Administrations are obliged to forge ever closer links, in terms of operational synchronisation and information-sharing, to ensure that it is only the genuine commercial cargo which moves through Customs border controls with utmost speed and facilitation, and that deterrence levels are so effective that no economy should feel at risk from a hidden threat in such cargo.

These are the new principles of Customs-to-Customs interaction in the context of contemporary international commerce, reflected either under bilateral arrangements, or realised through adoption of legal instruments enunciated by the World Customs Organisation.

In implementing these principles, Pakistan Customs and the US Customs and Border Protection have worked together for one year and have jointly invested over US $8 million to create an infrastructure, which supports operational integration between them on the one hand, and ensures security and facilitation for the trade, on the other.

The Declaration of Principles on the IC3 Programme was signed between Pakistan Customs and the United State Customs and Border Protection in Islamabad in March 2006, and, inter alia, covers all exports from Pakistan to the United States. The IC3 programme is fully operational since August'2007.


-- No delays for just in time shipments.

-- Reduced cost of business.

-- US buyers to gain more confidence in Pakistan's exports.

-- No operational delays of cargo at US ports view necessary clearance from the IC3 facility.

-- The US Importer would avoid costs resulting from the inspection and delayed clearance of imports at US ports.

-- Reduced clearance time at both ends resulting in net gain in business for both Pakistan and USA.


QICT's Sponsors will invest USD 250 million for establishing a Second Container Terminal at PORT QASIM ON BOT basis. DP-World CEO Mohammad Sharaf and Port Qasim Authority (PQA) Chairman Vice Admiral M.Asad Qureshi signed an agreement to this effect at the Prime Minister's House on 17th of August,2006.

Prime Minister Shaukat Aziz and Federal Minister Ports and Shipping Babar Khan Ghauri were also present on the occasion. This project is the highest ever foreign direct investment in port sector and would be completed in 3 phases with an overall capacity of 1.175 million teus and will enhance the total capacity of QICT to 2.175 million teus.


In terms of traffic, QICT handled 163,000 TEUs in 2001, 226,000 TEUs in 2002 333,000 teus in 2003, 496,000 teus in 2004, 545000 teus in 2005 and 629000 teus in 2006 and hopefully would completed 720,000 teus in 2007 which amply justifies QICT as the number one terminal in Pakistan.


Maersk Sealand , APL, Safmarine, Hanjin , Senator Lines , CMA-CGM , Cpships , Hapag Lloyd , UASC , Hamburg Sud, OOCL , NYK , MOL , MSC , Norasia , LNL , NSCSA, China Shipping , Samudera Shipping Line , Hyundai Merchant Marine , Emirates Shipping line , Simatech , ANL , MacAndrews , Lykes line , OEL , Sea Consortium and many other NVOCC operators.


QICT occupies berths 5, 6 and 7 at Port Qasim, encompassing a total area of 240,000m2. The quay wall is 600m long and the draught is 11m. QICT also provides very important intermodal and rail services to inland dry ports at Lahore, Rawalpindi/Islamabad, Multan and Faisalabad. The rail terminal has its own stacking area adjacent to the rail sidings, with direct access to the terminal. Delivery of containers by trucks at the terminal also takes place round the clock.

The yard offers 216 own plugs for reefer boxes and 251 plugs with Gensets with a maximum holding capacity of 12,000 TEU. 6 Post Panamax Quay cranes and 21 RTGs running on fixed strips and 8 reach-stackers, with a variety of forklifts available for empty box handling mostly undertake front line yard and vessel handling operations.

The whole operation is managed by a computer system by Navis incorporating a radio-data link between the yard vehicles and the planning center.


Civil works being undertaken which includes a brand new 5 storey Operations Centre completed in September'2005, Reclamation of 40,000sq.m land which would substantially increase our yard capacity and a brand new State of the Art Gate House operational since December,2007.

QICT has been ISPS Compliant since 1st July,2004 and is truly the "Port of the Future" for Pakistan and a vital institution assisting in the growth of the Nation's prosperity.

Copyright Business Recorder, 2008

Karachi International Container Terminal

ARTICLE (January 26 2008): Karachi International Container Terminal (KICT) is located west of the Indus Delta in the natural deep-water harbour of the century old Port of Karachi.

Subsequent to the signing of the concession agreement by the international project sponsors with Karachi Port Trust (KPT) in June 1996, KICT was formed as the Terminal Operating Company with the object of setting up a common user dedicated international container terminal at Karachi Port on the existing berths 28, 29 & 30, at West Wharf on a build, operate and transfer (BOT) basis.

KICT, the first and largest international container terminal operator at Karachi Port, commenced commercial operations in November 1998, and has since been "Pakistan's leading container terminal operator", both in terms of productivity and efficiency.

KICT is also the first container terminal operator in Pakistan to gain compliance with the International Ship and Port Security (ISPS) Code and receive ISO 9001:2000 certification. As a member of the Hutchison Port Holdings (HPH) Group, KICT enjoys the support and expertise of the world's leading port investor, developer and operator to help transform KICT into a major container handling facility, capable of receiving the region's increasing container trade.

As an organisation that actively invests in the development of modern port infrastructure, HPH is committed to playing a significant role in the development of the economies and the expansion of international trade opportunities for the countries in which it operates. Today HPH, a subsidiary of Hutchison Whampoa Limited (HWL), operates in 46 ports spanning 23 countries. In 2006, the HPH Group handled 59.3 million TEU (twenty foot equivalent units).


Located on the Arabian Sea, KICT is strategically positioned at the confluence of the world's major shipping routes providing international shipping connections to leading hub ports in Asia, Middle East, Europe and North America. Additionally, it provides excellent rail and road connections to Pakistan's major up-country industrial and manufacturing zones.

As Pakistan's shipment of containerised cargo consistently grows apace with the market economy, it is matched by KICT's ability to handle increasing numbers of containers. In 2006 KICT recorded a container volume growth of 19% to 565,000-TEU from the previous year, representing over 50% of Karachi Port's total container throughput and a 55% increase in EBIT due mainly to the higher throughput growth, comprehensive array of end user service offerings, improved productivity levels, minimised vessel turnaround times and deployment of leading technologies and terminal equipment.

KICT's close proximity to Pakistan's banking & financial sector, ease of access, a dense network of services, 24/7 operations ensured to the highest security, safety and environmental protection standards, and a pool of managerial talent with international experience further augments KICT's strategic role as the key conduit for international trade with a rapidly-changing, knowledge-based world.

SHIIPPING LINES OPERATING AT KICT: Shipping lines operating at KICT serve ports around the world with the services spanning the globe. These include APL, COSCO, MOL, Wan Hai Lines, Yang Ming Line, Evergreen, Hyundai Merchant Marine, Samudera Shipping Line Ltd, NYK, Maersk Line, OOCL, Hanjin Shipping, CNC Line, Shreyas Shipping Ltd, Sea Consortium and many other Non Vessel Operating Common Carrier (NVOCC) operators.

KICT FACILITIES: KICT occupies a cumulative area of 26 hectares and comprises three berths of which one is under development with a total quay wall length of 963 metres and current depth alongside of 11 metres. In addition to building existing container yard, KICT also constructed and enhanced supporting infrastructure, to include the expansion of in and out gatehouse lanes, in-house engineering department, marine operations and services buildings. KICT is also equipped with a temperature-controlled reefer facility offering 212 plugs for the handling of refrigerated containers.

The terminal is currently equipped with 4 ship-to-shore (STS) gantry cranes and two mobile harbour cranes (MHC). In supporting quayside operations, the container yard has a total of 23 rubber-tyred gantry cranes (RTGC) with a stacking arrangement of up to 'one-over-six'. In addition, KICT is outfitted with modern container handling equipment including terminal tractors, forklifts; chassis, reach stackers and empty handlers.

KICT PHASE-III DEVELOPMENT: With huge foreign direct investments, KICT has so far been expanded in two phases with the Phase-III development currently underway. Phase-III involves deepening the alongside depth to 14 metres, enhancing handling capacity by redeveloping acquired additional land area and berths (nos 26 & 27) adjacent to current facility and deploying additional quayside and container yard equipment.

When Phase-III is completed in Mid 2008, KICT will operate a total of seven ship-to- shore (STS) gantries, two mobile harbour cranes, 23 RTGCs, eight reach stackers, eight empty container handlers, 53 terminal tractors, six forklifts and radio data terminals (RDTs) on all terminal equipment. Phase-III development of KICT has been initiated in collaboration with Karachi Port Trust (KPT) to build the infrastructure needed to meet the growing cargo handling needs of Karachi Port.


At the heart KICT's operations resides the modern terminal operating system, designed by Navis Corp. Database software - EXPRESS interfaces with the graphic vessel and yard software - SPARCS. Real-time communications are maintained through the use of Electronic Data Interchange (EDI), fibre optic links and Radio Data Terminal (RDT) dispatches. KICT has an interactive website, which provides online information pertaining to vessel schedules and container status.


Today's global economy requires simplified, consistent and reliable Customs procedures, so that the growing volume of goods destined for overseas markets can be traded in a cost-effective manner, without undue delay.

KICT has the unique distinction for being the first container terminal operator in Pakistan to implement Pakistan Automated Customs Clearance System (PACCS), an automated risk assessment customs clearance process at KICT in collaboration with Pakistan Customs under Customs Administrative Reforms (CARE). This one-stop online operation at KICT, offers a comprehensive solution to the logistics needs of our customers.

It accelerates the flow of information with high system reliability and adopts a wide range of risk management techniques that enable Pakistan Customs to detect high-risk cargo without impeding the free flow of legitimate trade. This pre-clearance system significantly reduces waiting times and the need for paper-based documentation. On-site Customs offices ensure the swift processing of containers and vessels, to keep down-time to a bare minimum.


As a member of the Hutchison Port Holdings (HPH) Group, KICT believes that the implementation of advanced technology along with investments in human capital are the surest ways forward to improving terminal efficiency. It is this belief that has gained KICT the title of "Pakistan's leading container terminal operator" and has provided local industry with a strong channel to world markets. KICT is firmly committed to facilitating the growth of Pakistan's economy, as well as supporting the country to develop into a major hub for trade and transport in Asia.

Copyright Business Recorder, 2008

Concealment in baggage

ARTICLE (January 26 2008): Drug Enforcement Cell of Pakistan Customs (Airport Unit) has been established to curb the menace of the drug trafficking, the administrative head of DEC is Collector of Customs (Preventive) Custom House, Karachi.

At the time of its inception in the year 1976, it operated both at the airport & at wharfs from its headquarters at the Karachi Port under the direct command of Assistant Collector of Customs Hqrs, Customs House, Karachi. This cell works for drug interdiction at all the exports Stations that include the ports of Karachi & Muhammad Bin Qasim, airfreight unit and the Jinnah International Airport, Karachi.

This cell is staffed with some very experienced officers who also utilise the services of special trained drugs sniffing dogs. With the increasing workload, the airport unit of the DEC was separated from Wharfs on 1st January, 1991.

From the date onwards, the DEC airport unit is utilising all the available sources and expertise in efficiency dealing with drug trafficking through air routes. Till January, 2001, all the prosecution cases being registered under Customs Act, 1969.

However, in accordance with the rulings passed by the Apex court of the county, now-a-days, the cases are being registered under newly enacted "Control of Narcotics Substance Act, 1997". The field staff of the DEC, posted at the International Departures Hall of Jinnah International Airport is thus entrusted with duel responsibilities ie they enforce the provisions of Customs Act, 1969 as well as that of the Control of Narcotics Substance Act, 1997.

It is also worth mentioning here that it is the policy of the Customs Department of facilitate the passengers besides law enforcement. It is an intricate and somewhat unpleasant / unthankful job. It is considered that every passenger is honourable and everyone is suspected one. It is under these working conditions that the field staff carves out the culprits.

An interestingly important part of the DECs enforcement side is that all the drug trafficking cases detected by the field staff were so perfectly framed that we achieved almost 100% conviction rate ie whoever was apprehended by Customs for drug trafficking was punished by the trail courts. This factor alone speaks of the professional expertise of the Department.

I am representing for my years long association with DEC has professionally benefited me in such a manners that I have learnt a lot on the sensitive subject of drug trafficking and various modus operandi employed by the drug traffickers and Mafia. I feel privileged to share my knowledge and experience on the topics of Concealment Methods with my counterparts with the hope that it will yield better results. I have divided the topic of Concealment in two categories. One is "Baggage concealments: and other is "Body concealments".


Our job is based on doubts. We suspect a passenger on doubts. We study his travelling documents to know about his profession, flight route, final destination, place of issue. Name of the travelling agency if issued in Pakistan etc-etc.

This brief interview provides us enough information about passenger's purpose of visit to Pakistan (In case of foreigner) purpose of visiting abroad (In case of Pakistani passenger), has himself finance the trip or being sponsored by some one else and using him a carrier. After scrutiny and the interview then comes the passenger's baggage. Only such a short time left at your disposal to either to check OR let him go.

Experience shows that in most of the cases, the trafficker passengers report at the Customs checking counters only minutes before the flight departure. Soon after reporting for the Customs check, they keep on pressurising the officer to check him quickly so that he does not miss the flight.

This time fact is very important. Once the officer has thoroughly scrutinised the documents, interviewed the passenger, it becomes rather easier to treat and clear the passenger accordingly. At the same time, a work of advice from the senior officer can help better enforcement.

It is interested that there exists a sort of "unwritten" competition between the enforcement staff and Mafia involved in drug trafficking. The Mafia keeps on inventing and employing & untested methods of concealments.

On the other hand, with every interception & seizures, the method becomes obsolete but are used after years & year again. I have over the years, seen concealments in almost everything. To name a few, the drugs were found concealed in suitcases / travelling bags / briefcases / vanity boxes (Beauty Boxes) trolley bags / Crew Leather hand bags, coat hangers (also soaked / coated) handles of all kinds, shaving creams, juice powder tins / cans, food stuff tins, Henna Cones (Menhdi cones) steel nut bolts, plastered hand / leg (posing as if the person has undergone an orthopedic surgery) dry fruits ie hazelnuts, almonds, walnuts, dates, baby prams, kitchen utensils, shoes, tennis / cricket / hockey / base / foot balls, water melons, cauliflowers, knives / scissors (handles) books, photo albums, TV, Radio tape recorders, speakers, water pumps, Electric musical instruments, status, onyx wares, vases, cardboard cartons (walls+bottom) soaked coated clothes, audio/ video cassettes, glucose boxes, medicines especially capsules, wheel chairs, Electric fans, gum sticks, wall clocks, liquid tins, ladies make up kits, bicycles, garments, juicer machines, shampoo bottles, ball points, fountain pens, sweet & toffees, Gas cylinders, blankets, medical surgery instruments / equipments, thread cones, copper sire spools, fax / toilet paper rolls etc-etc.

Detection of narcotics concealment in baggage articles in considered to be a classified job. Officer keep on learning and heading towards perfection with the passage of time. Here, I would like to briefly discuss some common detection techniques employed by Pakistan Customs staff at the Karachi airport. In most of the cases, the drug was found concealed in suitcases.

First of all contents of the suitcase are inspected from drug inter dictation point of view, secondly, the suitcase are examined to detect concealment on secret parts. For this purpose, the officer knocks and taps at different part of the suitcase especially top & bottom. A stuffed suitcase gives you a dull sounding whereas an ordinary suitcase sounds sharply.

In short there is difference of sound which one case learn only by the daily experience. I always advise my colleagues to empty the suspected suitcase of their contents and then judge its weight. A stuffed suitcase is normally abnormally heavier than the normal one. Some very goods seizures were made on these techniques. The traffickers also use soft cover zipper suitcases. In this type of suitcases, the real wall and handled console are the most important parts.

We always emphasise on these parts and have been successful at times. While examining the suitcases, the officer should also look for the tempering marks, glue remnants and odor, tempered screw/bolts and smell etc-etc. It helps a lot in determining the status of the suitcase etc.

Heroin is an odorless narcotics. Some traffickers spray the suitcase with strong smelling scents etc. It is also an abnormal sign. If a suitcase smells strongly must be checked thoroughly. Another method used by the traffickers is to smuggle the soaked / coated form of heroin. What is soaked / coated heroin? In this method, heroin is first dissolved in a suitable solvent and then a piece of cloth or cardboard is soaked in this solution. The heroin is thus absorbed in cloth / cardboard piece in an undetectable manner.

To retrieve the heroin, these soaked / cardboard pieces are again dipped into a solvent so that the soaked heroin is again dissolved. Finally heroin is separated either by evaporation or any other suitable method. Although, detection of soaked heroin is a bit difficult, however a little application of mind gives positive results.

The heroin soaked cloth/ cardboard pieces change their normal appearance and texture; they become a bit stiff and heavier. Moreover, they also smell badly. This is enough for the enforcement officer to detect the case with the presence of mind.


Drug concealment in body cavities is a rather frequently experienced phenomenon at Karachi airport. This method has rapidly developed within past few years and in most of the cases, the African Negroes were found involved in such kind of drug trafficking. In such cases heroin is first packed in a small polythene packets which are then tightly secured with many layers of insulation tapes. This forms a heroin filled capsules.

These heroin filled capsules are either swallowed by or pushed into the trafficker's body anus. Some traffickers also conceal the drug packets in their pockets; shoes, under wears and even tie it round the Thais or in bodies with the insulation tapes. For this reason, the suspected passengers are ought to be subjected to personal search.

The best possible way of detecting the drug concealment inside body cavities is through X-rays. However, the passengers carrying drugs concealed inside their body cavities pose a number of problems for the enforcement staff. For all, they often travel in groups consisting of 6-10 persons and report at the Customs counters only minutes before scheduled departure time of their flight.

Thus leaving a very short time for the staff to determine their genuineness or else. They resist the X-ray exercise on one pretext or the other. They claim that X-rays are injurious for their health. The female traffickers would always claim that they are pregnant and X-rays could lead to miscarriage. They even threaten the officer of the dire consequences stating that they would lodge protest through their embassies.

Be firm and positive with cool head. Listen them patiently and send them for radiological tests one by one. Only one positive result helps a lot and the rest of the passengers feel demoralised and resort to co-operate with the Customs. Till recent past, the traffickers are using some yellow insulation reflector tapes on the capsules which gives deceiving results. The first such case was detected by me. Due to the shortage of resources, still we are preparing ourselves to combat this problem as well.


What I feel must for the enforcement staff is that:

a) They should be sincere to their job and fully aware of their legal authority.

b) They should be mentally prepared to take the task.

c) They should be fully aware of the profiled passengers, flights, routes, and destinations.

d) They should be quick in interviewing the passenger's and scrutinising their travelling documents to determine their credentials / status.

e) They should be able to quickly ascertain the purpose of passenger's travelling abroad and whether he himself financed the trip or some one else sponsored it for him

f) They should be good face readers and able to understand the body language and last but not least they should be firm & polite.


a) Passenger's status and credential, his purpose of travel, route, destination, fight and trip arrangements.

b) Passenger's expressions and behaviour.

c) Abnormally heavier suitcase / baggage articles.

d) It gives a dull knocking sound.

e) Presence of any good/items in the baggage which does not suit the passenger's requirements.

f) Inappropriate dress of the passenger with regard to the weather.


a) Foodstuff/ Powdered, Juice Cans (Tang), Tang tins were suspected as some Nigerian came for the delivery of contrabands in a local hotel at the airport. As he felt that he was being watched, he left the contrabands at the counter and ran away. Upon examination, heroin was recovered. Modus operandi was that the base of the tin was removed, heroin was stuffed and the base was re-fixed. Case was detected by me due to the small marks of tempering with.

b) Trolley Tubes & make up kits. A small packet of heroin kept in the middle & cream was packed in lower & upper portions of the times.

c) Henna Cones (Menhdi). Small packets of heroin was packed in the cover of Henna Mehndi cones. Due to the abnormal weight, it was suspected. The cone was ripped open and heroin was recovered.

d) Nut Bolts:- Large size of nut bolts were suspected. Minute inspection revealed that a small whole was drilled in the nuts, heroin was filled & top was closed / screwed. It was also suspected due to the weight.

e) Dry Fruits:- In many a case, walnuts were used for drug concealments. The two halves of the walnuts were smartly separated, inner space was used to conceal the drugs & the hales were re fixed to give its normal look. Suspected due to weight & smelling glue.

f) Wheel chairs / Baby Carts / Prams / Bicycles. Hollow metallic roads / tubes of these articles were used to conceal narcotics. Heavy weight & abnormal knocking sound helped detecting the case.

g) TV / Tape, Deck & other electronic gadgets / appliances:- There is always sufficient space in such gadgets / appliances for drug concealments. Whenever any passenger found carrying these items, especially from a third woruld country like Pakistan, must be checked thoroughly. Often gives positive results.

h) Cutlery Handles / Audio / Video Cassettes / Balls / Gum Sticks / clocks: Weight factor always played a vital role while checking these items. Considering this factor alone made remarkable seizures. Weight Factor is the main cause of detections.

i) Ceramics / Plastic Crockery:- In some cases heroin was artfully concealed in ceramics and in melamine crockery. In one interesting instance, a melamine bowl was covered with another bowl & heroin was concealed in the interstice. In this case too, weight aspect played a vital role.

j) Books / Photo Albums:- Hard covers of books / photo albums are hollowed out and filled with heroin powder covered with plastic / paper sheet. An Indonesian lady was arrested at the airport as she had few photo albums wherein her photographs were pasted. Heroin powder was duly packed in small and thin polythene packets were placed in between layers of photo album pages. The officer pierced a paper pin to find that heroin was concealed in the album? In this case 4 KGs white heroin was recovered from these photo albums.

k) Watermelons:- Lower portion of the watermelon was cut open. The pulp was taken out, heroin was kept and cut peel was replaced and fixed with scotch tape. This case was detected by Sri Lanka Customs at Colombo airport.

l) Stitched in garments: Small packets of 3-5 grams of heroin are stitched in the garments in the embroidery. Such kind of case have also been detected abroad.

These are rambling recollections of practical experience. By their very nature they can be exhaustive. As ling as the phenomenal financial benefit from drug trafficking continues, ever new techniques will continue to emerge and the eternal chase will continue. Who outsmarts the others? Only the time will tell but we will continue to fight against the drugs which has spoiled millions of the families in this world.

A few photocopies of some seizures are enclosed.

Copyright Business Recorder, 2008

Directorate General of Intelligence & Investigation, FBR

Business Recorder_Pakistan

ARTICLE (January 26 2008): The Directorate of Customs Intelligence was created in Pakistan, on 12TH August, 1957 with its Hqrs at Karachi and was assigned Job of unearthing and detection of evasion of Customs duties. On 1st June, 1974, the Federal levy of Central Excise duty was included.

This Directorate General was upgraded and shifted to Islamabad, housed in a rented building at Embassy Road, Islamabad in the year 1984. Since, 2nd August, 2004, the Hqrs are located in Government owned building at Mauve Area, G-10/4, Islamabad. On 19th, December, 2005 in addition to the above assignment, it was also assigned the job of integrity management duties.

On 28th March, 2007, its name, previously Directorate of Intelligence, (Customs & Excise), was changed and renamed as Directorate General of Intelligence & Investigation-CBR. Subsequent change of the name of "Central Board of Revenue" as "Federal Board of Revenue", again the name of the organisation has been made as Directorate General of Intelligence & Investigation-FBR.



"To change the directorate general into a proactive, intelligence driven & technology based organisation so as to optimise support to the FBR in achieving its objectives".


The present organogram of the Directorate General is as below: Previously the Regional office, Quetta which comprises jurisdiction of Balochistan Province, which is headed by a Deputy Director, was directly reporting to the Hqrs but since 10, September, 2007, the Regional office, Quetta has been placed under the administrative control of the Directorate Intelligence & Investigation-FBR, Karachi.

INFORMATION GATHERING: At present all main Federal levies ie Custom duties, Federal Excise duties, Sales Tax and Income Tax or in the domain of the organisation.


-- Surveillance of targets

-- Proxy presence at FBR Offices

-- Business rivalries

-- Written complaints

-- Press reports

-- Professional informers

-- RILO Network


The Existing Charter of Functions of the Directorate General is:


-- Preparation of monthly intelligence reports, periodical reports and issuance of alerts to various departments of FBR.

-- Maintenance of data base of tax evaders, smugglers for risk assessment / management.

-- To identify and recommend measures in new areas which are threat to national economy and international trading system / treaties.

-- To analyse monthly revenue statements received from field formations of both direct / indirect taxes and suggest improvements and highlight risk areas.

-- Consolidation of reports of significant cases of tax fraud, seizures of smuggled goods including narcotics, made by law enforcement agencies in Pakistan for publication in directorate general / RILO / WCO bulletins.

-- To co-ordinate with Pakistani missions abroad, foreign mission in Pakistan, counterpart organisations of member countries of the world customs organisation and signatories to international conventions, treaties, etc.

-- Any other function assigned by the chairman / finance minister.


-- To cover all federal taxes administered by federal board of revenue.

-- Identification, collection, proceeding of information on evasion of taxes and smuggling, dissemination to chairman FBR, minister for finance and other enforcement agencies.

-- Sharing of information collected from credible intelligence sources on trafficking of narcotics with FBR and other law enforcement agencies in Pakistan and abroad.


-- to conduct information based enforcement operations.


-- to inquire and investigate cases of corruption and malpractices involving employees of FBR and its field formations. Performance of Directorate of Intelligence & Investigation-FBR, regional office, Karachi during the period : 01-01-2007 to 22-01-2008.

01) Customs Cases:

a) Valuation issues:

i) Revenue loss amounting to Rs 741.597 million due to non-implementation of Valuation Rulings and Board's Notifications of fixed values for sales tax purpose:

Investigation / scrutiny of relevant import data of imports / exports carried out revealed that a huge loss of revenues occurred due to non implementation of Valuation Rulings and values fixed by the Board for sales tax purpose. Relevant Valuation Rulings issued by the Valuation Directorate in respect of RBD Palm Olien, motor cycle parts, electric motors, coated Calcium Carbonate, DVD players, paper and paper board, and reclaimed / re-melted lead ingots for export resulted into short levy of Rs 589.637 million.

Similarly, non implementation of values of re-rollable scrap and energy savers lamps fixed vide SRO-678(I)/2007 dated 06.07.2007 and SRO-732(I)/2006 dated 13.07.2006 resulted into short levy of Rs 151.96 million. The goods were cleared from Appraisement, Port Qasim, Preventive, Lahore, Peshawar, Quetta and PaCCS.

ii) Evasion of Rs 25.17 million. due to non-inclusion of Royalty / Technical Assistance Fee in custom value of imports by local manufacturers:

Investigations have revealed that two local manufacturers of batteries and medicines remitted Royalties / Technical Assistance Fees amounting to Rs 79.40 million and Rs 95.84 millions respectively to their foreign principals upto 2006 was not included in the Customs value of their imports under Section 25 (2) (d) (e) of the Customs Act, 1969. The short levy comes to Rs 25.17 million.

B) Misuse / violation of sros: Scrutiny of relevant import data of Appraisement, Port Qasim, Preventive Collectorate and PaCCS revealed that in many cases goods were cleared without levy of additional duty as per SRO-693(I)/2006 dated 01.07.2006, resulting short levy of Rs 170 million. Similarly, certain goods not being admissible to exemption were unduly released under SRO-567(I)/2006 dated 05.06.2006 and SRO-530(I)/2005 dated 06.06.2005 causing loss of public exchequer to the tune of Rs 30.74 million. In yet another case, spare parts of Belarus tractors were unduly released under SRO-453(I)/2004 dated 16.06.2004 as CKD kits for Tractors evading thereby taxes to the tune of Rs 14.18 million.

C) Seizures and Contraventions on account of misdeclarations / fiscal frauds involving amount of Rs 150.274 million:

Three contravention cases of mis-classification of Natural Calcium Phosphate and Optical Transmission Equipments for unduly claiming exemption under PCT heading 9934 and 9935 were made involving loss of revenue amounting to Rs 124.39 million. Two contravention cases involving evasion of Rs 13.38 million were made out against Bawan Shah Group of Companies for misuse of DTRE Scheme whereby the imported fabric was not used in their export consignments.

Another six seizure cases involving revenue to the tune of Rs 10.354 million were made on account of misdeclaration of description, quantity, PCT, value, etc. The seized goods included photographic paper, machinery items, generators, stationery, PVC scrap, circuit breakers, etc, cleared through MCC (PaCCS). Yet in two other cases used cooking oil and Palm Sterein unfit for human consumption were seized.

d) Misdeclaration in Transshipment consignments destined for up-country dry ports:

During July, 2007, Regional Office, Karachi intercepted / detained a number of consignments meant / cleared for Transshipment to up-country dry ports in pursuance of information regarding import of various dutiable items under the garb of used machinery. The containers were being transshipped through PaCCS. On physical examination each of such containers was found to contain grossly misdeclared dutiable items imported under declaration of used machinery. Since consignments were meant for up-country dry ports, after joint examination by staff of Directorate and MCC the consignments were released for transshipment and gross discrepancies were pointed out to concern Collectorates to initiate appropriate action at their end.

e) Investigations into 122 missing containers : This Regional office has identified as much as 122 containers of miscellaneous goods purportedly removed from the port without payment of duties against fake and forged Goods Declaration, etc. In this regard, a case has been registered in respect of 11 such containers while investigation and procurement of necessary information from various quarters is still under way.

f) Anti smuggling activities / seizure cases:

Regional Office, Karachi:

During anti smuggling campaign in Karachi and Sukkur, eighty seizure cases of smuggled goods worth Rs 66.42 million were made. The seized goods include 19 smuggled vehicles worth Rs 21.45 million, and POL products / miscellaneous goods worth Rs 44.97 million.

REGIONAL OFFICE, QUETTA: Since September, 2007 onwards, after placing of Regional Office, Quetta under the administrative control of Directorate General of Intelligence & Investigation-FBR, Karachi, two seizure cases of contraband high quality Charas have been effected. In one case 320 kgs Charas was recovered from a bus while in other case 170 kgs was recovered from Toyota Hi-Lux pick-up intercepted at Quetta-Chaman Road. The value of seized Charas comes to Rs 3.3 million. Besides, smuggled miscellaneous items (including Falcons) worth Rs 11.580 million have also been seized in addition to six units smuggled vehicles of CIF value Rs 3.2 million during anti smuggling drive.

02) Sales Tax and Federal Excise:

a) Sales Tax Contravention

CASES INVOLVING RS 560.455 MILLION: A total number of 27 contravention cases involving recoverable amount of sales tax to the tune of Rs 560.455 million were made during January, 2007 todate. In eighteen such cases sales tax refund of Rs 516.180 million has been claimed on the basis of fake / forged invoices.

In three cases unregistered units were found to make taxable supplies involving sales tax of Rs 7.541 million. Yet in other six cases registered units were making taxable supplies without paying sales tax on their supplies. The evasion comes to Rs 36.734 million in this regard.

B) FEDERAL EXCISE DUTY CASES / RECOVERIES OF RS 22.912 MILLION: On pointation of Directorate General (I&I), Karachi, Federal Excise Duty amounting to Rs 22.912 million was realised / recovered against Franchise / Technical Fee / Royalty, etc in four cases.

03) REVENUE REALISATION OF RS 47.40 MILLION THROUGH AUCTION / DISPOSAL OF SEIZED/CONFISCATED GOODS: During the last calendar year, confiscated goods including 32 smuggled vehicles were disposed of through public auction / released on payment of taxes. Total revenue amounting to Rs 47.40 million was realised in this regard.

a) Destruction of liquor / confiscated goods:

Destruction of 26465 bottles of liquor was carried out on 07.02.2007 in which of liquor were destroyed at Karachi. Besides, destruction of miscellaneous confiscated goods at Sukkur was carried out on 03.08.2007.

b) Recovery in pending deletion cases:

The Directorate General has been vehemently pursuing respective Collectorates for recovery of out-standing amounts of taxes on account of short falls in deletion targets of local assemblers of vehicles pending since 2003-04. During the year 2007, an amount of Rs 108.059 million was recovered only from auto mobile assemblers.

Monday, January 21, 2008

Inefficiency at its best

The Federal Board of Revenue (FBR) has failed to stem the growing menace of tax frauds


By Huzaima Bukhari and Dr Ikramul Haq

The Federal Board of Revenue (FBR), even after completing six years of so-called tax reforms (which started in 2002 and will end in 2009), symbolises an institution wrought with sleaze, wastefulness, inefficiency and corruption. The recent episodes of tax scams (fake income tax refunds, flying sales tax invoices, excessive payments of export rebates, etc) have once again confirmed the existence of an unholy alliance between corrupt tax officials and unscrupulous businesspeople, which is not only depriving the nation of billion of rupees but is also criminally shifting the incidence of taxes to the poor.

In recent years, the FBR has been making tall claims about its automation efforts. Its chairperson informed the public time and again that after the introduction of automated procedures in all departments, the possibilities of tax fraud were eliminated effectively. On the contrary, the data show that since 2005, when computerised procedures were introduced, the incidence of tax frauds has increased manifold, in comparison with the days when manual procedures were in vogue.

This shows that before going for automation, system analyses were not conducted properly and human resource development was completely ignored. The recent tax scams testify to the fact that there is a complete failure on the part of so-called 'line members' (drawing excellent salaries and fringe benefits) to adopt preemptive measures against possible tax frauds. This also confirms that functional members (old timers representing the departmental bureaucracy) are not ready for change; for one obvious reason that their salaries, as well as that of their subordinate staff, are much lower than those officers hired from the market and the 'donor-imposed' foreign consultants.

The tax frauds that surfaced recently were detected mainly by the Directorate-General of Intelligence, the FBR. These frauds, however, represent only a tip of the iceberg. The actual number of tax frauds committed during the last five years and the quantum of tax involved are yet to be determined. The government, therefore, must immediately form a commission comprising anti-corruption officials, judges, and audit and tax experts to thoroughly probe the record of the last five years of all the tax departments, in order to unearth all the cases of tax frauds. The retrieval of public money through this commission will also help increase the collection of taxes in the current fiscal year.

The following summary of major tax frauds reported in the media recently and its analysis establishes beyond any doubt the criminal culpability of the high-ups of the FBR:

On January 5, 2008, a report was published in a leading newspapers disclosing that the FBR has unearthed a scam in Lahore involving a senior income tax official of BPS-20, who allegedly issued bogus refunds of over Rs 103 million in 39 cases on forged documents from 2003 to 2007. Earlier, a similar scam was reported in Karachi.

On October 22, 2007, Directorate-General of Intelligence, Customs and Excise, instituted criminal proceedings against 14 industrial units of Punjab for claiming illegal sales tax refunds by filing bogus invoices. The fraud took place two years ago when many commercial exporters had claimed illegal refunds on the basis of fake documents (interestingly, it took the FBR two years to take notice of the crime!).

The inquiry of illegal refund to pay phone companies is till pending. These companies, according to the FBR's own admission, were not entitled to the refund because they were exempt from excise duty on the services provided by them for the period up to July 1, 2005. Why no action was taken at the time of payment of refund and an inquiry was initiated only much later?

On May 14, 2006, the Supreme Court of Pakistan rejected the bail application of Raja Zaraat, "who has been wielding far larger financial clout than originally estimated" in getting billions of rupees as tax refund on forged documents, says an FBR press release. The FBR admitted that though the first compliant against Raja Zaraat was received by it in December 2005, no action was taken against him till May 4, 2006, when he was arrested in Islamabad.

The FBR has itself admitted that in numerous cases refunds were made to commercial exporters without obtaining prior approval of additional collectors. This is a clear violation of the FBR's Sales Tax Wing's directive that the approval of additional collector was required for sanctioning refund claim exceeding one million rupees to commercial exporters. The sanctioning authorities also ignored the FBR's instructions on the procedure for overruling system objections for issuance of sales tax refunds. Investigation showed that sales tax officials did not carry out profile analysis of the suppliers in cases of refund claims, sanctioned to commercial exporters under Refund Rules, 2006.

Glaring system errors were also detected in STARR refund automation programme, whereby goods exported were recorded in the system only till the filing of shipping bills. This resulted in inaccurate as well as incomplete data of export consignments. It was noticed that certain unscrupulous exporters filed claims without making actual exports. There was need for capturing the data of shipping lines to ensure authenticity of export documents used for claiming rebate, which was never done. Though the FBR was aware that some unscrupulous exporters were claiming sales tax refunds against fake and tampered shipping bills, no concrete efforts were adopted to counter them.

Also, in many cases, unscrupulous exporters -- with the connivance of corrupt tax staff -- successfully obtained refund by circumventing the STARR system, because it had not put enough checks to verify the shipping bills. During scrutiny of STARR programme in 2006, it was found that refunds were made even in cases where the computer programme had detected discrepancies in the documents submitted by exporters.

The increased number of refund scams and unfettered tax evasion confirm that nothing has changed, which is a sad reflection on FBR's top management. The corrupt and resourceful are still holding key posts, and are issuing refunds on forged documents. They are still encouraging the profit-hungry traders and businesspeople not to pay taxes, but just give them their due 'share'.

It is beyond any doubt that the prevalent mass-scale evasion of taxes is not possible without the connivance of tax administrators (read 'administraitors'). The tax-evaders and tax administrators together constitute a mafia that has made Pakistan a haven for tax-dodgers and plunderers of national wealth. The tax officials holding key posts are directly connected with these people. They design and get implemented policies for 'mutually-beneficial' relations between them, while the whole nation is a silent spectator. The outcome is a total destruction of our socio-economic system (ever-increasing rich-poor divide, chaos, lawlessness, etc).

(The writers are tax advisers who also teach at LUMS.)

Sunday, January 20, 2008

Plugging loopholes: amendments to Income Tax Ordinance proposed


ISLAMABAD (January 20 2008): The Federal Board of Revenue (FBR) has detected serious flaws in the exemptions granted for foreign remittances under section 111 of the Income Tax Ordinance 2001, analysing measures to control revenue loss and loophole in the tax collection system.

Sources told Business Recorder on Saturday that the income tax department had conducted a study on the "section-111 unexplained income/assets" to propose amendments to the Income Tax Ordinance, 2001.

The department has found that the anti-tax avoidance measure under section 111 is almost a replica of section 13 of the repealed Income Tax Ordinance, 1979, which is reproduction of the old law. All the sub-sections of the section 111 have some loopholes, which needs amendment to the Ordinance, 2001.

It is an important provision dealing with the unexplained assets and income tax to check black economy in Pakistan. Under the said section, the income tax department is not empowered to demand the source of the foreign investment.

The study has pointed out that the concept of unexplained income or assets defined in Section 111 cannot be said to be a new provision. The identical provisions were available in Section 4 of the Income Tax Act 1922 and Section 13 of the repealed Ordinance, 1979.

A comparison of Income Tax Ordinance, 1979, and new Ordinance, 2001 confirmed that all new provisions of the Ordinance, 2001 already existed in the old law. The identical provisions relating to unexplained investment/expenditure, valuation of assets, valuation of open plots, discovery of unexplained amount of investment, valuable articles or expenditure, etc were available in both the repealed and existing Ordinances without change.

According to the report, a departure from Section 13 of the repealed Ordinance, has been made for any amount being foreign exchange, brought into Pakistan through normal banking channels, encashed in rupees from a scheduled bank and a certificate was also obtained from that bank. This amount will not be subject to addition under this section of the Ordinance.

As a result of this, a free-hand is being given to anyone, who is in a position to transmit untaxed earnings (through Hawala) abroad, bring it in Pakistan through the said process and enjoy its benefits without paying a single rupee as tax or penalty.

Explaining Section 111, the analysis said that the concept behind such provisions are to bring into account under the chargeability of such incomes, that either have no source or a taxpayer fails to explain its sources or the assets are recorded below transactional value actually transacted. In this way, it is the taxation of income, which is either consciously or by fiction concealed/avoided from the tax authorities. The section 111 has been drafted to cater to this situation.

Under clause (a) (b) (c) of sub section (1), the legislature intends to check the source of any amount credited in the person's books of accounts, any investment made by persons being owner of the money or valuable article or a person's expenditure.

The main emphasis is on the source of the amounts referred above and in case the person offers no explanation or a satisfactory explanation about the nature and source, such amount should be included in the person's income chargeable to tax under the head "income from other sources" to the extent it is not adequately explained, report said.

With the universal acceptance of all returns under section 120, the provisions of this section will be applicable at the time of audit of cases by the Commissioner or proceedings u/s 122(1) of the Income Tax Ordinance 2001, whereas in the repealed Ordinance, section 13 could be invoked during proceedings of cases under normal law.

This means that any addition under this section can take place subsequent to its discovery by the commissioner, who after giving the taxpayer an opportunity of being heard can proceed with the addition, if the explanation offered by the taxpayer is not, in his opinion, satisfactory, it said.

Under the repealed Ordinance, 1979, the concept of year of discovery was to make addition in the year preceding to the year of discovery. Prior to amendment by the Finance Act, 2004, in sub-section (2), in respect of any unexplained cash credit in books of accounts, investment or expenditure the relevant period for additions was in the tax year in which discovery is made by the commissioner.

So, if discovery was made in respect of unexplained investment in tax year 2005 relating to tax year 2004, addition could only be made in tax year 2005 when return would he received. This had created a difficult situation for the department.

The amendment has shifted the period for the purpose of addition to "tax year immediately preceding the financial year in which discovery is made by the commissioner". In other words, now addition will be made in tax year 2004, if such discovery is made in tax year 2005. Under this section addition can only be made for the last five completed years.

It would have been more logical to amend the law to provide that addition be made in tax year/assessment year to which such cash credit in books of accounts investment or expenditure, etc relates, as now action u/s 111(1) can only be taken for preceding five tax years or assessment years.

The analysis further highlighted that under sub section (3), the commissioner has given powers to examine the declared cost of any investment, valuable article or declared amount of expenditure, which is less than reasonable cost, the difference is to be added in the income chargeable to tax under the head "income from other sources" in the tax year immediately preceding the financial year in which it was discovered. This is almost identical to Section 13 (1)(d) read with 13(2) of the repealed Income Tax Ordinance.

For valuation of assets for the purposes of this section, Rule 228 has been framed, however, in sub-section (4), the immunity in respect of foreign exchange remitted from outside Pakistan through normal banking channel has been reaffirmed.

It has been further provided that no addition can he made under sub-section (1) of Section 111 for a period beyond the preceding five tax years or assessment years.

Previously this was specified in Circular No 8 of 2003, which has now been made part of the statutory law to dispel any fear in the minds of the taxpayers regarding addition for unexplained sources being made in the year of discovery regardless of the limitation of time.