History, collection and litigation – News – The Nation
The exact history of the conception of “customs” as a source of revenue is unknown, however, Adam Smith in his book “The Wealth of Nations” says that customs as common payment obligations had existed since ancient times. . It is believed that customs existed in ancient Egypt, around 2700-2200 BC. Evidence suggests that ‘caravan management’, a title for official administrative positions of the time, was responsible for recording goods entering and leaving Egypt. It also collected customs duties as well as statistics, thus having functions close to those of today’s customs.
Customs are public revenue paid to the government when certain goods cross its borders. The nature and role of customs duties have not been the same at all periods of historical development. Until the 18th century, the role of customs duties converged towards regulating the balance of trade, maintaining hegemony in international affairs, and political maneuvering amidst conflicts between different nations of the world.
The nature and role of customs duties began, as historical facts show, from the time of the slaves, but they developed in the second phase of feudalism and especially in the first phase of the development of capitalist relations. During this period, the role of customs duties was solely focused on protecting domestic production. This period is called the period of customs protectionism. Customs revenue and quantitative import or export restrictions are what are often referred to as trade policy instruments. Customs is one of the fundamental instruments for protecting national economies against foreign competition.
In the 19th century, Adam Smith’s ideas about free trade began to catch on. The idea of free trade and open borders has changed the whole concept of collecting customs duties. Rather than using tariffs as a policy instrument for trade barriers alone, they were to be used as a means of generating revenue for public finances, thus profiling the fiscal role of tariffs.
In contemporary times, public spending on important social sectors like health, education, and infrastructure is seen as vital for robust and sustainable economic growth. However, government expenditure is directly dependent on the revenue collected and expenditure incurred by the state to run the affairs of governments. It has been observed that developing countries often have great difficulty in controlling their budget deficits. This means that revenues do not increase at the corresponding rate as the cost of running a state increases. Such a scenario inhibits development policy options for a government that ultimately resorts to cutting crucial expenditures for the socio-economic development of citizens, thereby slowing the pace of the nation’s growth.
Pakistan faces a very similar situation. Although revenue statistics show 18% growth in fiscal year 2020-21, our budget deficit hovers around 7-9% of GDP, which is unsustainable in a context of rising inflation and virtual stagnation in exports and foreign direct investment (FDI).
If we look closely at the distribution of revenue, we find that about Rs 747.3 billion was collected from customs duties alone. This represents 15.78% of the total revenue collected in the 2020-21 financial year. However, if we look at the volume of imports is Rs8982 billion, the figure is not correlated with the duties collected.
If we dig deeper into the reasons for this gap, we see an interesting phenomenon catalyzing the income gap; it is the dispute against the duties imposed on the imported goods. There is no doubt that the calculation of rights is a complex procedure that can be manipulated, misused or abused. However, the sheer complexity of the procedure does not justify a higher number of disputes faced by Pakistan Customs.
In fact, around 3,200 cases are collectively pending against Karachi’s top revenue collectors. This large number of disputes reveals the underlying hurdles that Pakistan Customs face in collecting duties efficiently and expeditiously. On the other hand, a significant part of the revenue remains uncollected due to the imminent suspension orders granted by the various judicial bodies.
It is undeniable that every citizen benefits from certain constitutional guarantees against the violation of fundamental rights by the executive authorities and that the Constitution allows the courts to intervene in such eventualities, but it has been observed that there is a growing tendency to circumvent the fiscal obligations behind these constitutional guarantees. It is necessary to understand that the well-being of citizens is based on the economic stability of a country, which is based on efficient revenue collection, which requires smooth fiscal governance.
It is urgent that specialized chambers specializing in customs laws be constituted in each high court of the country to decide within three months all pending cases relating to customs disputes. No stay should be allowed to continue beyond a two-month period, as the state not only loses revenue, but also pays an opportunity cost. All the Customs Special Appeal Tribunal (CAT) benches in the country can be made functional to clear the backlog of cases. Currently, of the nine chambers of the Tribunal, four have no legal members, while three chambers operate without technical members. Close coordination between the Federal Revenue Council and the Ministry of Law and Justice could solve the problem of appointing the technical and legal members of the courts of appeal.
Apart from these policy and administrative measures to end the practice of lengthy legal battles to avoid taxes and duties by tax defaulters, it is also imperative to strengthen the legal wing of Pakistan Customs. A legally sound and technically competent prosecution service can be just as effective in expediting case resolution and stay orders as the other measures suggested. The establishment of the Law and Prosecution Branch will have a positive impact on the investigation and prosecution of cases. As an independent body with no connection to revenue collection, L&P will promote fair and impartial investigations and prosecutions, which would enhance the level of confidence of the business community and eliminate bureaucratic delays. The Law and Prosecution Branch will be responsible for all matters relating to the initiation of legal proceedings, investigations, prosecutions and the defense of criminal and civil proceedings in all courts, including the High Courts and the Court Supreme Court of Pakistan through the respective leadership.
A responsible nation pays its taxes and a democratic government facilitates the process for its taxpayers. Pakistan is a democracy and its people are responsible citizens. Hopefully this theory translates into practice as well.
The author is an Assistant Collector of Pakistan Customs.