Plugging legal lacunas to stem revenue leaks

LAHORE: Earlier, non-filers were banned from buying new cars only but were permitted to buy used cars that included imported cars as well. This rule impacted the production of domestic cars only and was a boon for used imported cars that were mostly priced higher than locally produced automobiles.

The economic managers cleverly switched the word ‘new car’ with ‘new registration’ that removed the disadvantage the domestic industry was subjected to.

However there is still a way that could enable non-filers to buy new or used cars.

They acquire non-registered cars through bank leasing.

They get the possession of car straight away but technically the vehicle remains in the name of the banks till the full payment of the lease amount in 3-5 years.

This flaw could be exploited by non-filers by making up to 80-90 percent payment upfront to the banks and leasing the balance 10 percent to drastically reduce the interest on the lease.

A change in law should be made making it mandatory for the banks to lease it only to filers. This would close doors for the non-taxpayers to acquire unregistered cars.

Under-invoicing is marginalising the local industries. The bureaucrats are hand in glove with the importers in fixing import tariff price. All laws that have been made in this regard have been manipulated to the advantage of the importers indulged in under-invoicing.

For instance a law was incorporated years back giving the right to any person to challenge the import price value.

The challenger has the right to quote what he/she deems as fair price and then deposit 25 percent of the import duty on that deemed price in the exchequer. This was done to ensure that the challenger was serious and not maligning the importer.

The customs, after receiving 25 percent duty from the challenger, approach the actual importer and inform him that someone has challenged their invoice value. The original importer is then asked to match the price of the challenger and get the consignment cleared on that value.

The importer complies. The challenger then has to languish for a longtime to get the paid duty back and vows never to challenge under-invoicing. Under invoicing has an official blessing and cannot be controlled without introducing prudent measures.

It is pertinent to note the 17 percent sales tax on local and imported goods has more impact on the cost of the goods than the import duty that usually ranges from 5-10 percent (the import duty on most tyres for instance is 5 percent).

In case of substantial under-invoicing the sales tax on duty paid value is less than the sales tax collected from the same products produced by the domestic industry. This makes domestic products more expensive.

The simple solution in this regard is to adopt the way the Indians control under-invoicing. Apart from fixing import duty they have also fixed a minimum duty in rupees on under-invoicing-prone items. They charge the importer the amount whichever is higher.

If the import duty is higher than minimum duty, they charge the duty, otherwise the minimum duty is charged. Pakistani tax authorities should fix minimum duty based on the sales tax they receive from same products produced in the country. Say, for instance, a Pakistani producer pays Rs17 as sales tax on a product worth Rs100.

The sales tax on imported product with a duty component of 10 percent should be Rs18.7 and if a duty of Rs10 is added to it then the cumulative impact would be Rs28.7 (sales tax is collected on duty-paid value of the invoice). This provides ample protection to the domestic industry and would pave way for the economies of scale, leading to more exports.

In the same way the banned items should never be allowed to be imported in the country and there should be no discretion of bureaucracy in this regard.

Banned imports should be destroyed forthwith publically. This will end the import of many used and substandard items in the country. The laws should be carefully framed to break the connivance of businesses with bureaucracy.