Pakistan catches Chinese firm evading Rs1.12b in taxes

Islamabad – Pakistan’s customs authorities have caught a Chinese company that supplies coal to the 1,320-megawatt Sahiwal Power Plant evading Rs1.12 billion in taxes on its imports, but the tax machinery is reluctant to file a criminal case due to sensitivities attached with the China-Pakistan Economic Corridor (CPEC).

Despite the fact that the company has admitted its fault and deposited Rs1.2 billion in the exchequer last month, the Federal Board of Revenue (FBR) is reluctant to register a criminal case against Huaneng Fuyun Shipping Company owing to ‘national interests’.

The case highlights the magnitude of challenges authorities are facing in dealing with Chinese firms.
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The first investigation report has not been registered against Huaneng Fuyun Shipping in ‘national interest’, said an FBR official on the condition of anonymity.

The Model Customs Collectorate Port Qasim, Karachi, unearthed the case of evasion of duty and taxes by Huaneng Fuyun Ports & Shipping, according to FBR’s documents. The company belongs to state-owned China Huaneng Group. Another sister company of the Group, Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited, has built the 1,320MW Sahiwal power plant under the CPEC framework.

On Pakistan’s National Day, Prime Minister Shahid Khaqan Abbasi signed the “Outstanding Achievement Award” for the Huaneng Sahiwal Power Station, according to the China Huaneng Group’s website.

China Huaneng Group is a key state-owned company established with the approval of the State Council. It does business in development, investment, construction, operation and management of power sources; finance and energy transportation.

The company imports coal and supplies it to the Punjab-based power plant. The customs authorities took action after they came to know that the company utilised machinery imported during fiscal years 2016-2017 without filing of Goods Declarations (GDs) and payment of duty and taxes.

A team of customs officials comprising Chief Collector-Appraisement (South) Rasheed A Sheikh and Collector MCC, Port Qasim Muhammad Javaid carried out detailed scrutiny of the company’s imports.

The scrutiny revealed that the company imported 14 consignments since 2016. Out of these 14 consignments, four got cleared against payment of duty and taxes but 10 were utilised without fulfilling due process of law and payment of duty and taxes, according to the FBR documents.

These consignments did not leave the port premises and were used for development of a dedicated coal terminal at Port Qasim for uninterrupted coal supply up to the country to Sahiwal power project.

The FBR has recovered duties and taxes on the imports of ‘Coal Belt Conveyor’ and ‘Railway Track Fittings’ to the tune of Rs237 million. The taxes and duties worth Rs885 million have also been recovered against eight consignments of different machinery and equipment, said the officials.

The company has admitted its default and agreed to pay the evaded amount of duties and taxes worth Rs1.12 billion, which the authorities believed was one of highest tax recovery in a single case at the import stage.

Although the FBR is reluctant to register an FIR against the firm, it has started other legal formalities for recovery of penalties on the evaded amount of duties. The collector has further directed to identify and nab culprits involved in the scam.

The evasion of duties by the Chinese firm is not an isolated case, as tax authorities also face challenges of misdeclaration of goods under the guise of imports for the construction of projects of CPEC, said sources in the FBR.

There are also issues in making the web-based one custom (WEBOC) system operational at Gwadar port to book imports arriving for the purpose of CPEC projects. The FBR is facing pressure to let the port function on a relatively unsecured system of One-Customs due to delay in operationalisation of the WEBOC, said the sources.

The FBR is also resisting pressure from Gilgit-Baltistan against its decision to make the WEBOC operational. The pressure is coming from the Pakistani importers, as the web based system would address the issue of under declaration of value of goods being imported from China, said the sources. According to some estimates, the value of the imports from China is understated by about $4 billion.

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