Imported cars scam
Afew years ago, a German woman whose visa had expired married a poor cycle rickshaw puller in an Asian country to enable her to stay in that country. In the novel A Short History of Tractors in Ukraine, an 84-year-old Ukrainian man marries a young American woman to get US nationality. Now it has come to light that Pakistanis who buy expensive luxury cars by evading heavy import duties get themselves declared drivers of embassies. Diplomats issue fake appointment letters that claim that “the Pakistanis owning the cars are drivers of the embassy in question.” The total loss to the exchequer under this head could be Rs70 billion a month or Rs840bn a year. This is happening at a time when the government is making effort to fetch more and more taxes by expanding the tax net.
The modus operandi of evading billions in duty is said to be that vehicles are imported by diplomats and representatives of INGOs, etc, but the actual owners of the vehicles are reportedly Pakistanis. As foreign diplomats and representatives of INGOs are exempt from paying import duty, the vehicles they import carry diplomatic registration number plates for three years. Import duty is not levied on vehicles that are three years old or more, so these vehicles are transferred in the name of their actual owners (Pakistanis) after that period. The price of a Lexus SUV is Rs10 million. If a Pakistani imports it, he has to pay an import duty of Rs30 million. But those exempt from paying import duty save Rs30 million. So the importer (foreign diplomat) gets a monetary benefit and the actual owner (a Pakistani) gets the vehicle at a far lower price than its market price. The market price of a Lexus is over Rs40m. But under the scam it is bought for Rs15-20m.
The scam is said to be growing since Sept 11, 2001, when the government allowed diplomats to use covered registration number plates due to security reasons.
Changes to tax laws
The government has introduced a host of changes to tax laws and on December 28, 2019, notified the Tax Laws (Second Amendment) Ordinance but waited till New Year’s day to announce it.
The ordinance was critical to meeting conditions set by the Financial Action Task Force (FATF) and to keep the country from falling into the task force’s blacklist. Amongst other things, the ordinance proposes a new set of penalties and punishments for carrying foreign currency and jewellery above $10,000 and 15 tolas respectively out of the country.
It also greatly alters the minimum tax for traders with a turnover of up to Rs100 million.
Moreover, the ordinance lowers the custom duties and sales tax imposed on cell phones costing up to $200. This will directly impact the less-than privileged citizens who purchase such phones.
The ordinance will allow information to be shared between the Federal Board of Revenue (FBR) and the Financial Monitoring Unit (FMU). A directorate is also being set up to crack down on evasion of taxes and duties, thereby meeting another key requirement for the FATF.
It seems unlikely that the government would have faced resistance from the political opposition on many of the changes introduced. Moreover, given the context, it could have been expedited through parliament. Many changes contained in the document seem to offer course correction from some of the harsher stances adopted by the government in previous budgetary documents.
The ordinance will be welcomed in many sectors, including traders and cheap mobile phone owners in particular. It is a welcome sign that the government while adopting harder stances against tax evaders is also listening to the public, though it would have been sweeter if it were with the full weight of parliament behind it.