Staff Report
ISLAMABAD: In a bid to address mounting concerns over the misuse of the Afghan Transit Trade, the Ministry of Commerce has called upon the Federal Board of Revenue (FBR) to take decisive measures. In a ‘most immediate’ letter dated 19th September 2023, titled “Measures to be taken regarding smuggling-prone items imported by Afghanistan in transit through Pakistan,” the Commerce Ministry has sought FBR’s intervention to curb the misuse of this trade route.
Citing the significant disparity in customs duties between Afghanistan and Pakistan, the Commerce Ministry contends that this differential is being exploited through collusion between businessmen from both sides. To counter this issue, the Commerce Ministry has proposed two key measures aimed at promoting fair trade practices and safeguarding revenue:
- Replacing Revolving Insurance Guarantee with Bank Guarantee: The Commerce Ministry has recommended that the requirement for a Revolving Insurance Guarantee for all Afghan Transit Trade goods be substituted with a Bank Guarantee set at 100 percent of the assessed value.
- Imposing a Processing Fee: A processing fee, equivalent to 10 percent ad valorem, is proposed to be levied on Afghan Transit goods that exhibit an unjustified increase in forward transit cargo, given Afghanistan’s negligible customs duties on these items.
The surge in imports by Afghanistan, which has led to a substantial trade deficit, has raised questions about its plausibility. This is especially notable in light of Afghanistan’s limited exports and the imposition of various sanctions on its interim government. A comparative analysis of major Afghan Transit Trade items over the past two years reveals that the increased volumes of imports through Pakistan, including fabric, tyres, black tea, home appliances, toiletries, and cosmetics, are attributed to Pakistan’s limited imports of these items. This situation not only translates into revenue losses but also undermines government import curtailment efforts, impacting the domestic industry adversely.
As part of its efforts to address this issue comprehensively, the Ministry of Commerce is in the process of submitting a summary to ban the aforementioned items from the Afghan Transit Trade. Once approved by the competent authorities, a Statutory Regulatory Order (SRO) will be issued to implement this measure.
The volume of Afghan Transit Trade (forward) via Pakistan has seen a remarkable 67 percent increase during FY 2022-23, surging from USD 4.016 billion in FY 2021-22 to an impressive USD 6.71 billion. The effective implementation of these proposed measures is anticipated to rectify trade imbalances, curb smuggling, and protect domestic industries while ensuring the integrity of the Afghan Transit Trade route.
