ISLAMABAD: Tax authorities warned insurance firms on Monday over their role in underwriting billions of rupees of Afghan transit trade as several of them allegedly went into default after misusing the trade facility.
FBR Chairman Shabbar Zaidi told The News that some insurance companies were not charging average fee on Afghan transit trade (ATT) cargoes as directed by the apex tax authority and therefore they were given warning to immediately comply with the instructions of the revenue board.
“FBR has observed that some insurance companies are not properly complying with the requirements and fee condition with respect to guarantees on Afghan transit goods,” Zaidi said in a tweet. “Such entities are warned to correct their mechanism and immediately correct their system,” he said.
Under the customs laws, Afghan importers through customs agents or transport operators in Pakistan are required to furnish financial security in the form of insurance guarantee for goods destined for Afghanistan, from an insurance company that remains valid for at least one year and encashable in Pakistan for ensuring the fulfillment of any obligation arising out of customs transit operation between Pakistan and Afghanistan. The amount of financial security for transit operation is determined by system on the basis of the assessment done by customs at the office of departure so that it covers all import levies, according to the customs rules.
Insurance companies, however, argued against their noncompliance with the rules. “We are providing insurance services for securing the duty for the FBR,” an official at Crescent Star Insurance Limited said, requesting anonymity. “In case goods fail to reach Afghanistan then the insurance companies pay the guaranteed amount in terms of customs duty,” the official added.
Sources said the insurance guarantee condition was placed to ensure safe transportation of goods up to Afghanistan under the transit treaty. But the FBR found that the issued guarantees worth billions of rupees were not encashed so the FBR issued instructions for insurance companies to avoid such practices and comply with the instructions in order to avoid any punitive actions, the sources said.
“These guarantees could not be encashed from banks and the stuck amount has gone into millions and billions of rupees,” one customs official confirmed.
The FBR chairman took this timely step as Pakistan is ready to open up Torkham border on 24/7 basis. Although Pakistan has placed clearing system on 24-hour basis Afghan side closes border gates in evening and nights. Afghan trade transit was recently resumed.
Officials said the bilateral trade has dropped in recent years,but now it is hoped that the bilateral trade volume would increase gradually in months and years ahead and could reach $5 billion.
The insurance firm’s official further said the transit goods crosses the borders in different time period and once the customs authorities in Afghanistan verify that the goods have reached the guarantees provided by insurance companies are automatically deleted/eliminated.
The official expressed surprise over the remarks of the FBR chairman. “On what ground he is blaming the insurance companies.”
Sources in Pakistan Customs said financial guarantee of both provided by insurance companies or banks in terms of Afghan transit trade is acceptable. The purpose of ensuring guarantee against Afghan transit trade is to secure the duty and taxes for national exchequer.
The sources said in the past there was a mega scam in Afghan transit trade and in which the Federal Tax Ombudsman reported huge losses of duty and taxes. The procedure of financial guarantee was adopted in order to secure the duty and taxes.
Muhammad Aamir, general secretary of Karachi Customs Agents Association said customs agents dealing with transit trade work on behalf of Afghan importers and also ensure financial guarantee from insurance companies.
Aamir said the insurance guarantee is applicable till the clearance of goods and when the customs authorities in Afghanistan verify cargo arrival.
Aamir, however, said there are concerns that national trade data is showing decline in imports of Pakistan. On the other hand, the import under transit trade is rising, he said.
Aamir said if there is clearance of transit trade on fake and forged documents, then there would be fraud at all the stages. The Afghan customs verify the entry of goods in their territory, he added.
Zeba Bashir, director of Directorate of Transit Trade said there is no issue of financial guarantees by insurance companies. The customs secures the duty and taxes through financial guarantees and there are no issues in this regard on those goods destined for Afghanistan, she added.