ISLAMABAD: As the government is striving hard to fetch more and more taxes by expanding the tax net, it is being cheated out of billions of rupees in duty under a scam involving misuse of the facility of duty-free import of luxury vehicles by some foreign diplomats, representatives of international non-governmental organisations and armed forces personnel of a few countries, according to sources.

The Federal Board of Revenue (FBR) has taken up the matter with the Ministry of Foreign Affairs (Mofa), asking it to write a letter to all foreign embassies and international NGOs to ascertain their criteria for importing luxury vehicles for diplomats and other foreign nationals, who are exempt from paying duty while importing vehicles for their use in Pakistan.

Through a letter, FBR chairman Shabbar Zaidi has informed Mofa of reports that the facility of duty-free import of vehicles is being “misused” by certain embassies or diplomatic missions by importing more vehicles than they actually require. The ministry has been urged to revisit the existing regime for duty-free import of vehicles by embassies, diplomatic missions and dignitaries.

FBR chairman has informed foreign ministry of the matter

According to the sources, the modus operandi of evading billions in duty is that vehicles are imported by diplomats, representatives of international NGOs or military personnel/attaché of different countries, but the actual owners of the vehicles are said to be Pakistanis.

“It has come to the notice of FBR that the vehicles are handed over to unauthorised persons for use and, later after a lapse of some time, these are sold to them,” said Mr Zaidi’s letter.

As foreign diplomats, representatives of international NGOs and armed forces personnel of various countries are exempt from paying import duty, the vehicles they import carry diplomatic registration number plates for three years. As import duty is not levied on vehicles that are three years old or more, these vehicles are transferred in the name of its actual owner (a Pakistani) after that period.

For instance, the price of a Lexus SUV is Rs10 million. If a Pakistani imports it, he/she will be required to pay an import duty of Rs30m. But this amount can be saved if a person who is exempt from paying import duty imports it.

In the process, the importer (foreign diplomat/military attaché) gains a monetary benefit and the actual owner (a Pakistani) gets the vehicle at a price that is far lower than its market price. The market price of Lexus is over Rs40m but under the scam it is purchased by the Pakistani owner for Rs15-20m.

According to senior officials of the vehicle registration authority of Islamabad, the scam has been growing since Sept 11, 2001, when the government allowed diplomats to use covered registration number plates (starting with the alphabets QL, QM, and QN) due to security reasons. “Now cars are imported by foreign diplomats and they are misused by Pakistani owners who drive them with covered number plates,” an official said.

According to the sources, in some cases diplomats issue “fake appointment letters” that claim that the Pakistanis owning the cars are drivers of the embassy in question.

An official said that import duty was evaded on two types of vehicles — those which were imported by diplomats and those that were imported by other persons who fell in the category of privileged people, like representatives of international NGOs.

The vehicles that are imported by diplomats are directly registered with Mofa by its deputy chief for protocol and those imported by privileged people are registered with the local registration authorities. However, the record of both types of vehicles is maintained in Mofa because no diplomatic vehicle can be registered without prior issuance of a no-objection certificate by the ministry.

Earlier, the record of these automobiles was maintained by the local authorities as they were registered with district vehicle registration authorities but local authorities no longer have record of vehicles imported by diplomats. The local authorities, however, issue covered registration number plates and these vehicles are ply with these plates.

The second category is of the cars which are imported by representatives of international NGOs, foreign military personnel and some international firms. These vehicles are registered with local authorities.

The luxury vehicles that are being imported under the scam include Lamborghini, Camaro, Hummers, Nissan GTRs (r35), Rolls Royce, Lexus, Bentley, Porche and BMW.

“It is in the notice of the FBR that two yellow duty-free Lamborghinis are being used in Faisalabad and Karachi,” an official of the FBR said.

The official of the local vehicle registration authority said some 12 to 15 vehicles (imported by non-diplomats) are registered with the Islamabad Vehicle Registration Authority in a month, which means 180 vehicles a year. However, the number of such vehicles registered in Karachi and Quetta is said to be even higher.

According to an estimate, the total loss to the national exchequer under this head could be Rs70bn per month or Rs840bn per annum.

If the authorities concerned confiscate all such vehicles, the government may collect a huge amount in duty.

Also, some officials suggested that the interior ministry should allow a separate motor registration series for imported vehicles so that their record could be maintained by the local vehicle registration authorities.

When the Mofa spokesperson was asked about the issue, she replied: “Under Vienna Convention on Diplomatic and Consular Relations and Pakistan Customs Tariff 9901, 9902 and 9905 regulated by the FBR, all diplomatic missions and diplomats in Pakistan are entitled to duty-free import of official vehicles and personal vehicles, respectively. Diplomats across the world are expected to abide by the privileges granted to them by the host country.”

Ayesha Farooq said the imposition of duty or otherwise at the time of sale of a diplomatic vehicle was determined on the basis of reciprocity. “Accordingly, 50 diplomatic and consular missions have to pay different percentages of duties for selling personal vehicles, which are calculated on the basis of vehicles’ entry/stay in Pakistan. Another 43 missions are entitled to duty-free sale, after three years of import. All married diplomats’ second personal vehicle cannot be sold duty free,” she added.

Asked how many such vehicles were registered with Mofa in the last five years, the spokesperson said the number of official vehicles that a mission can import is 50 per cent of their respective diplomatic strength. “For personal vehicles, married diplomats can import or locally purchase two vehicles otherwise only one is permitted per diplomat.”

Answering a question about stopping misuse of diplomatic vehicles, Ms Farooq said: “From time to time the policy has been under review with updates communicated to foreign missions in Pakistan. A four-layered internal online portal is being used for processing imports/sale permission requests between Foreign Office and diplomatic missions. To eliminate any chance of error, a subsequent verification procedure with customs is also in place,” she added.

Published in Dawn, December 30th, 2019