KARACHI, Aug 19: Commercial importers have joined hands with exporters for mutual benefit: they provide copies of import invoices to exporters enabling them to show that they have used imported items in the making of exported goods and get sales tax refunds. This has lured many exporters into over-invoicing of exports and the trend seems sustainable so long as the spread between official and open market exchange rates is negligible. Currently it is around 30 paisa per dollar only. In the past when the spread used to be up to Rs4 per dollar the exporters rather used to do under-invoicing. But things have changed over time.
This helps importers save the three per cent additional sales tax that they are supposed to pay in case they sell imported goods to people not registered with the sales tax collectorate. There is another class of people who are not importers at all and do not import anything under the sun. Their only business is to provide exporters with fake sales documents of the items that are shown on papers as imported and are backed up by a copy of fake import invoice. Whereas the exporters get the same benefit of claiming sales tax refunds with the help of these papers this class of unscrupulous elements get the benefit in the shape of a fee. Dawn inquiries reveal that this fee currently ranges between 0.6-1.0 per cent part. The net loser is the government that has to pay fake sales tax refunds in tens of millions of rupees to the exporters that in turn also lowers net revenue collection in the country.
Let us consider this example. An exporter A asks importer B to provide him a sale receipt attached with import invoice valuing Rs1 million. The importer does this. Now the exporter establishes before the authorities that he has purchased Rs1 million worth of imported goods from importer B who has already paid sales tax at the rate of 15 percent on the same. The government is bound to refund to him Rs150,000 having been already paid by the importer as sales tax on imports. In fact exporter A has not used the said imported material in the manufacturing of his export items —and obviously has not purchased the imported goods at all. He has only entered into a paper transaction with the importer. So this Rs150,000 that the exporter gets as ST refund is his unlawful earning.
On the other hand, importer B has actually sold the imported items to a person not registered with sales tax collectorate. Had he not entered with the exporter A into a paper transaction he would have to disclose to the authorities that he has sold the imported goods to an un-registered person and would have to pay additional three per cent sales tax. So by providing fake sale documents backed up by a copy of genuine import invoice to the exporters, the importer saves paying this three per cent sales tax. If the amount of imported good is Rs1 million this means a saving of Rs30,000. Given the fact that importers daily transact businesses in billions of rupees this saving of three per cent translates into tens of millions of rupees that should have gone to the exchequer.
“We know this is happening,” said a CBR official reached by Dawn over telephone in Islamabad. He said the Central Board of Revenue was aware of the fact that exporters have been over- invoicing exports—and in certain cases getting export rebate on fake documentation. “We would shortly launch a crackdown against all those involved in such practices,” said the official who refused to be named. A source close to Export Collectorate in Karachi confirmed that a number of export fraud cases have been detected lately.
Insiders say the CBR has been investigating the cases of over- invoicing in exports for quite some time adding that it also sent a team to Dubai for information gathering a few months ago.
Exporters admit that many of them have been over-invoicing particularly those export consignments that are meant for Dubai. Small wonder than official figures for exports to Dubai swelled to $783 million in first ten months of last fiscal year up from $567 million in a year-ago period. Leading exporters privately admit that over-invoicing is a key factor behind this 38 per cent increase in exports to Dubai in July/April 2003. “I would say at least part of this increase is because of over-invoicing,” said a former chief of All-Pakistan Textile Mills Association.
Pakistan’s exports crossed the $11 billion mark in fiscal 2002-03 up from $9.2 billion. Whereas all other factors for this big increase in export remain valid it can be said safely that over-invoicing must have also contributed its bit in making the export figures look impressive.
Dawn inquiries reveal that importers have been helping the exporters in getting sales tax refunds by providing them necessary documents establishing that they have sold imported goods to the exporters. The exporters then establish again through fake documentation that these imported goods have been used in the manufacture of export items and thus claim sales tax refunds on the same. What benefit then the importers get out of it? “This saves us from paying an extra three per cent sales tax that we would have to pay had we sold the imported items to persons not registered with sales tax collectorate,” explained an importer.
The rising trend of over-invoicing in exports has also lured many unscrupulous elements into the business of making fake import invoices of export inputs for the benefit of exporters.
Inquiries show that groups of such people are doing roaring business with exporters. “They do provide us fake documents at different rates,” confided a local exporter adding that the current rate ranges between 0.6-1.0 per cent. This means that if an exporter gets a sales tax refund of Rs100,000 on a fake document he has to pay Rs600-Rs1000 to the person who prepares the same. People engaged in preparing fake import documents not only enjoy the support of some unscrupulous elements in customs but in certain cases bankers also help them in opening fake LCs.
“Several groups of such people are operating in each market nowadays,” said a cloth exporter based at Karachi’s cloth market. He said every group has in its fold upto a hundred operatives. So the number of those involved in this racket runs into thousands.
Customs officials say the Karachi exports collectorate lately also detected cases of mis-declaration by exporters for the sake of getting export rebates. In one such case 40 cartons of cotton wicks were detected that had been declared as cartons of art silk lace on which 5.5 per cent rebate is allowed.