EFS Violations Lead to Closure of Import Businesses in Karachi

Karachi: Salim Valimuhammad, Chairman of the Pakistan Chemicals and Dyes Merchants Association (PCDMA), has raised concerns over significant misuse of the Export Facilitation Scheme (EFS), which has reportedly caused a loss of Rs. 25 billion to the national treasury. The scheme, intended to enhance exports, has been exploited for duty evasion and revenue leakage, he said.

Valimuhammad highlighted an alarming 80% increase in imports under Chapters 27 to 32 of chemicals and dyes, particularly 3204, between 2023 and 2024, without a corresponding rise in exports. He stated that this discrepancy indicates that duty-free imports are being diverted to local markets rather than being utilized for export production.

The PCDMA chief presented data showing that the government missed out on approximately Rs. 24-25 billion in potential revenue from Chapter 3204 imports alone due to low customs duty and sales tax collections. This points to significant leakage in the system, he noted.

To address EFS misuse, Valimuhammad suggested reforms like prompt processing of sales tax rebates and customs duty refunds to enhance cash flow for genuine exporters. He recommended a ban on duty-free imports under EFS without valid export Letters of Credit (LCs).

He pointed out the scheme’s negative impact on trade, with a 25% reduction in association membership over two years. Regular importers struggle to compete with industries benefiting from duty-free raw materials, he argued, as they face customs duty, income tax, and additional sales tax.

Valimuhammad lamented that dozens of legitimate importers of chemicals and dyes have been compelled to close their businesses due to these violations. Despite submitting detailed budget proposals to the Federal Board of Revenue (FBR) to address EFS anomalies, the association has received no response, he said.

He appealed directly to Prime Minister Shehbaz Sharif, Finance Minister Muhammad Aurangzeb, and FBR Chairman Rashid Mahmood Langrial to restrict EFS benefits to actual export production and disallow duty-free imports without verified export LCs. Valimuhammad warned that the current EFS loopholes are causing revenue losses and driving legitimate businesses to shut down, urging urgent government intervention.