Commission Raises Concerns Over Verification of Freight Charges and Valuation in Import Sector

Commission Raises Concerns Over Verification of Freight Charges and Valuation in Import Sector

Islamabad, June 5, 2023: A high-powered commission, appointed by the finance minister of Pakistan, has expressed concerns regarding the verification of freight charges in CFR/CNF (Cost and Freight/Cost, Insurance, and Freight) invoices, which has led to potential underdeclaration of CNF values and the exclusion of freight charges on the Bill of Lading.

The commission has identified the absence of a proper mechanism to verify freight charges as a major loophole, allowing importers to underdeclare CNF values and resulting in lower duty collections. With freight charges experiencing significant increases in recent months, they now constitute a notable portion of the overall product cost.

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To address these issues, the commission has recommended initiating discussions between Customs officials and shipping agencies to make the inclusion of freight charges on the Bill of Lading mandatory. This move aims to enhance transparency and facilitate accurate assessment of imported products’ values, ensuring proper duty collection.

Another challenge highlighted by the commission relates to the lack of detailed valuation and availability of correct data for machineries and parts. The declared values often fall substantially below market prices, leading to undercollection of duties. To combat this, the commission advises engaging with the Valuation department of Customs and studying international best practices to establish a robust valuation mechanism that aligns with market realities.

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Furthermore, instances have been observed where finished products are valued lower than the raw materials used in their manufacturing processes. This practice diminishes the valuation of imported consignments, resulting in lower duty collections. To address this, the commission suggests establishing an independent and dedicated team focused on determining, assessing, and evaluating the value of high-value, high-tech, or heavily taxed import shipments. Discussions with the Valuation department of Customs and the establishment of a data science department can further support these efforts.

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Revising the assessed value of finished articles based on international prices of materials such as plastics, rubber, steel, raw cotton, yarn, fiber, wood, paper, etc., is deemed essential. The commission recommends introducing a minimum value addition rate, such as 30% above the raw material prices, to account for packaging and other value-added processes. These measures will ensure fair and accurate valuation.

Addressing the underdeclaration of freight charges and valuation issues in the import sector is crucial for promoting transparency, fair trade, and proper duty collection. The implementation of the commission’s recommendations will contribute to the overall growth and sustainability of Pakistan’s economy.

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