Rs5.5trn trade discrepancy with China uncovered, linked to under-invoicing, digital loopholes: report

A five-year review of Pakistan’s trade with China has uncovered a staggering Rs5.5 trillion discrepancy, primarily due to under-invoicing and weaknesses in the country’s digital integration at ports, according to a report by The News. 

These loopholes have reportedly facilitated the manipulation of cargo records, tax assessments, and declarations, leading to substantial revenue losses. As per the report, the Rs5.5 trillion figure is an extrapolated estimate based on sampled data, highlighting systematic exploitation of digital shortcomings.

The report, citing findings from the Task Force on Revamping of the Maritime Sector, noted that Pakistan’s port operations remain digitally disconnected from international systems and this gap has enabled large-scale misdeclarations of goods, underreported values, and tax evasion, particularly on high-tariff imports. 

The Task Force found that out of 32 essential port processes, only four at Karachi Port Trust (KPT) and six at Port Qasim Authority (PQA) are digitized. Critical areas requiring urgent digital integration include vessel and traffic management, cargo handling, financial operations, and security monitoring.

The report identifies several key issues contributing to revenue leakage, including the absence of mandatory point-of-origin declarations, manipulation of Harmonised System (HS) codes, and misuse of Pakistan’s green channel. 

Many high-duty goods are falsely declared at lower values, reducing tax obligations. For instance, a consignment of carbon steel pipes, valued at $0.9 per kilogram, may be recorded at $0.69 per kilogram, potentially under-invoicing Rs20 million for a 500-ton shipment. Similarly, deodorant sprays with an actual assessed value of $4.6 per kilogram remain vulnerable to misclassification, resulting in tax evasion.

The report further highlights critical inefficiencies in Pakistan’s customs clearance system, Web-Based One Customs (WeBOC). Originally designed for automated clearance, WeBOC now operates on outdated hardware and software, lacking integration with scanners and digital tracking systems. This creates delays and leaves room for fraudulent practices. 

Additionally, financial transactions remain outside Pakistan Single Window, allowing illicit fund movements and tax evasion on a massive scale.

According to the report, failure to modernize port operations has not only contributed to revenue losses but also weakened investor confidence. Without robust digital oversight, financial losses due to trade discrepancies remain difficult to quantify, further complicating efforts to improve transparency and tax collection.