Customs dilemma

LAHORE: Incidents of corruption in the customs department may trigger a cascading effect, creating hidden costs, reducing revenue efficiency, fostering illegal activities and distorting competition. Reducing these practices requires strong institutional reforms, increased transparency and a robust accountability mechanism.

Customs ranks among the most corrupt government institutions in many developing countries, including Pakistan. Corruption in customs differs from that in other government agencies in the sense that most importers and exporters do not view it as immoral. Bribes requested by customs officials to expedite the clearance of goods have become tacitly accepted as a trade transaction cost is routinely passed down to clients or consumers.

When corruption becomes widespread, it opens the door to more serious issues like drug smuggling, illegal arms trading and trafficking. Corrupt officers turn a blind eye to illegal shipments in exchange for bribes, weakening national security and public safety. This has escalated into a systemic issue where criminal networks exploit weak enforcement for illicit gains.

Corruption at customs often results in unfair competition, as companies willing to pay bribes can bypass regulations, underpay duties or smuggle goods. The menace of under-invoicing is well documented in Pakistan. This undermines compliant businesses that follow the rules and pay their fair share, distorting the market and weakening the integrity of trade practices.

Companies that export or import face unpredictable costs due to bribery, which can undermine their competitiveness in international markets, as corruption at custox`ms inflates transaction costs and delays clearance times, creating a barrier to smooth trade. This unpredictability deters businesses from trading across borders, thereby limiting the benefits of free trade agreements and global market access.

Corrupt practices at customs lead to hidden costs in the form of bribes, inflated fees and under-the-table payments to speed up processes. These hidden costs drive up the total cost of importing goods, which are typically passed on to consumers in the form of higher prices, leading to implicit taxation. This not only erodes purchasing power but also diminishes overall consumer welfare.

All this is happening as we have granted significant discretionary powers to customs officials without a transparent process of accountability that encourages corruption. Officials abuse their powers to extract bribes in exchange for faster clearance or favourable treatment. Without accountability, corrupt customs officers feel emboldened, and the lack of oversight exacerbates the problem.

Corruption reduces revenue efficiency by diverting funds that should have gone to the state. Bribes allow companies to underreport the value of goods or avoid duties altogether, leading to revenue leakage for the government. As customs revenues drop, the government looks for alternative revenue sources, and is forced to raise taxes elsewhere. This further burdens the economy.

Companies that refuse to participate in corruption are disadvantaged, as they face longer clearance times or higher official fees, as corrupt customs practices create an uneven playing field for businesses. This unfair competition has stifled innovation, limited market access and discouraged foreign direct investment, as international companies are wary of corrupt systems.