With the change in government, placements of officers, particularly in high worth revenue machinery, are not unusual and the majority of these strategic positions are targeted at maintaining the status quo on major revenue cases.

The Federal Board of Revenue (FBR) has already witnessed the change of command soon after the coalition government led by Shehbaz Sharif took over. The further reshuffle or otherwise among the key formations would determine if the mega cases are concluded on merit in accordance with law or settled in the dust.

The FBR has recently been in the limelight on the purported big revenue loss worth billions of rupees in a matter of 10,000 vehicles imported by a private firm. Initial discussions at the floor of the public accounts committee recently suggest these vehicles may have been imported at alleged misdeclared and under-invoiced values of $11,000 each.

On the directives of the Public Accounts Committee, the previous FBR constituted a 4-member probe committee to investigate this matter. The method and manner of probing the matter illustrate how such scams are always pushed under the carpet without any recovery of lost revenue and without any punishment to the customs officials involved.

The members of the probe committee have been asked to investigate a scam in which true quantification of revenue loss is likely to spoil their benefactor’s future career prospects

The case has already been adjudicated at the level of collector adjudication, Karachi. Such an adjudicated case needs to be reopened by the FBR through a written order under section 195 of the Customs Act before Chairman FBR can mandate a probe committee to re-investigate such an adjudicated case. However, the chairman’s order constituting a probe committee to re-investigate the scam does not show that the Board has reopened the case under section 195 before mandating its further investigation.

This brings in the probe proceedings a legal flaw which is likely to result in quashing of probe committee proceedings on the ground of lack of jurisdiction without an express case reopening order made by the competent authority. The composition of the probe committee also illustrates how big revenue loss scams in FBR are investigated and suppressed.

The case calls into question the role, whether it is justified or not has to be yet decided, of the top official at customs operations FBR. Interestingly, all the four members of the probe committee are the beneficiary of lucrative positions given to them from that position. Also interestingly, the members of the probe committee have been asked to investigate a scam in which true quantification of revenue loss is likely to spoil their benefactor’s future career prospects.

According to the Terms of Reference of the probe committee, its members have been required to determine the fair value of imported vehicles under section 25 of the Customs Act. The valuation department of the FBR determines fair values of imported goods under section 25 usually by following the ‘deductive value method’ of customs valuation.

In the deductive value method of customs valuation given under section 25 of the Customs Act, the basic idea is to begin with the market value in the country of importation of imported goods similar or identical to the imported goods being valued and work back all through from country of importation to the country of exportation deducting from the market value all the expenses incurred from the country of exportation to the country of importation.

The expenses which are to be deducted under the law from the market value of similar or identical goods to arrive at the assessable value of the goods being valued include duty and taxes payable on importation or sale in the country of importation, usual costs incurred on account of transport and insurance and the additions to value usually made on account of profit and general expenses incurred on the sale of similar/identical imported goods in Pakistan.

Under the deductive value method of customs valuation, the determination of the true assessable value of 10,000 vehicles allegedly under-assessed by the customs at Karachi has to begin with the market sale value of the same vehicles imported into Pakistan other than the 10,000 vehicles in question.

If the probe committee follows this FBR’s usual and most commonly used valuation practice for vehicles in question too, the revenue losses caused in the case may swell far beyond the presently alleged amounts. However, by following the FBR’s favourite deductive value method of customs valuation, the probe committee members may end up spoiling the career of their benefactor who is accused in the matter.

How the probe committee members successfully re-investigate an adjudicated case without the Board’s express case reopening order made by the competent authority under section 195 and how they choose to deviate from the deductive value method of customs valuation to suppress the actual revenue loss caused in vehicles scam will be interesting to see when the probe committee submits it’s report on May 15.

In a similar case last year, changes in customs laws were introduced through an ordinance to benefit a few. An age-old provision of customs law requiring only a bank guarantee in provisional assessment cases was changed and replaced with a worthless corporate guarantee to enable custom officers to demand a bank guarantee in such cases but to finally settle for a corporate guarantee in return for heavy bribes. Person specific changes were also made to empower valuation and revaluation in a single hand.

To retain prize positions and make deep connections in the federal bureaucracy and top government officials who mattered, non-custom paid luxury V8 vehicles seized by customs formations were distributed at will instead of the legal procedure of auction and their sale proceeds deposited in the government treasury. If a high powered committee is formed to match the custom collectorates’ seizure and delivery registers, the number and makes of vehicles so dished out to build connections can be easily traced.

It may still be recalled that a similar case of a countrywide crackdown against the smuggling of petroleum products into Pakistan created a lot of fanfare to impress the then government but the outcome was nothing positive.

Actually, on the ground, small petroleum selling outlets were sealed and FIRs registered against their operators and owners. Massive duty/tax calculations were made on the sealed outlet’s presumed petroleum sales in the past and these heavy baseless liabilities were adjudicated under pressure from the departmental adjudication authorities.

When the High Court questioned the concerned collectors to furnish the basis of duty/tax calculations made against the petroleum outlet owners and operators, the collectors gave statements in favour of the accused persons. This months-long exercise ended in nothing. The majority of the petroleum outlets which were targeted in the crackdown resumed their operations as usual after the department gave statements in courts in their favour.

All the anti-smuggling workforce was wastefully deployed for months on the so-called petroleum crackdown leaving smugglers of other items at liberty to smuggle with the customs’ collusion. If the government constitutes yet another committee to uncover the actual proceedings and outcomes of the petroleum crackdown, it will find how big management disasters go unnoticed in FBR.

Published in Dawn, The Business and Finance Weekly, May 2nd, 2022

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