Karachi, October 10, 2023 – The Pakistan Business Council (PBC) has revealed a significant issue of underreporting in Pakistan’s exports to China, raising concerns about foreign exchange problems faced by the country.
According to the PBC’s analysis, exports to China were underreported by a staggering $594 million, representing a substantial discrepancy of 21 percent.
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The PBC expressed its concerns in a letter addressed to the Finance Minister on October 7, 2023, stating, “In the absence of plausible explanations, we suggest that a $594 million shortfall in forex inflow was on account of under-invoicing to build funds to pay for subsequent under-invoiced imports.”
Among Pakistan’s top export destinations, the United States accounted for the largest share at 20 percent, followed by China at 8 percent, the United Kingdom at 8 percent, the Netherlands at 6 percent, Germany at 6 percent, Spain at 4 percent, and Italy at 4 percent. The Gulf Cooperation Council (GCC) countries were not included in this analysis because they do not report their data to the International Trade Centre (ITC).
The analysis covered 56 percent of Pakistan’s exports in 2022, amounting to $17.1 billion at the Free on Board (FOB) value. The PBC adjusted this figure upwards by 10 percent to arrive at a Cost, Insurance, and Freight (CIF) value of $18.8 billion. Importing countries report imports to the ITC based on the CIF value.
The PBC found that export values reported by Pakistan to all major destinations, except China, fell within an acceptable tolerance limit, taking into account timing and other possible factors like trans-shipment in Europe.
The significant shortfall in exports to China occurred in a year when Pakistan faced acute pressure on its foreign exchange reserves, prompting the PBC to call for an investigation by both the State Bank of Pakistan (SBP) and the Federal Board of Revenue (FBR). The PBC also raised concerns about potential tax revenue losses, estimating a loss of approximately Rs 1.2 billion at a one percent tax rate based on the 2022 exchange rate of USD=PKR 205.
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Earlier, on October 4, 2023, the PBC had communicated with the Finance Minister, highlighting discrepancies in import data. It pointed out that ITC trade data does not always align, especially with trans-shipment countries like Singapore, the UAE, or the Netherlands. While acknowledging that the discrepancies may not solely be attributed to under or over-invoicing, the PBC emphasized that the attractiveness of evading high import tariffs and strong anecdotal evidence of under-invoicing make further investigation, particularly concerning large discrepancies like those with China, necessary.
To address these issues, the PBC suggested exploring agreements for the exchange of information through Electronic Data Interchange with key trading partners, aiming for greater transparency and accuracy in trade data reporting and analysis.
