Terminal Dues: The Challenge Of Cross Border Trade and Ecommerce In Pakistan
I have often wondered why, despite ecommerce stores like Amazon managing to ship books into Pakistan since 2,000 and earlier, Pakistanis are never shipped millions of items like electronics, clothing, fashion accessories and other items as well. People usually have to resort to buying these things while on vacations or through family and friends visiting from abroad.
One can say that given Pakistan’s massive import deficit, opening up our borders to items of mass consumption could dent our foreign earnings even more. Fair enough. But even then, infrastructural equipment that businesses operating in ICT (Internet & Communication Technologies) can use to generate more foreign revenue, is not easily accessible while neighboring countries like Dubai don’t have that problem.
Despite international movement of good becoming easier than ever, Amazon and other giants don’t ship to Pakistan
Once upon a time, the challenge to international ecommerce businesses was fraud, theft and payments, but with the rise and acceptance of international insurance, better screening for fraud and increasing penetration of credit cards and pre-paid debit cards, even that hurdle is no longer present. With the rise of new payment methods, especially with international mobile wallets, the growth opportunities for international businesses are immense.
Yet despite the willingness and ability, Amazon and other stores do not ship to Pakistan. Whilst FTO Addresses / Parcel Forwarding Services / Shop & Ship methods are present, these add up to 30% to the price of an item. Furthermore, many face trust issues which a direct retailer might not.
The Sad Story of A Guy Who Wanted An Imported iPhone 6S
I found out the answer to this predicament firsthand when a friend decided to purchase and ship the latest and greatest iPhone 6S to Pakistan via the Apple Store. He pre-ordered it and and decided to send the phone to Pakistan directly via courier instead of waiting for someone to bring it back in their luggage.
Shipment by Apple took time. Despite the order being made on 12th of September, 2015, Apple took until 3rd of October to finally send the shipment, which also destroyed the excitement of receiving the phone early (Incidentally it was available by the 27th in Karachi for the price of Rs. 99,999).
Then came the inevitable customs and clearance for the phone from UK (where it was ordered) which posed another problem. Shipments of Telecommunications equipment to Pakistan are generally not allowed (We also found out that Pakistan also disallows import of Used Items and also Viagra.).
To be fair, telecommunication equipment comes under military use as well as personal, thus given the security situation Pakistan faces, PTA disallows any telecom equipment which does not come with their NOC. This came after 2013 ruling whereby:
According to a letter sent to the Federal Board of Revenue (FBR), the telecom regulatory authority has directed custom officials not to clear consignments of cellular phones if the importer has not submitted design and IMEI (International Mobile Equipment Identity) details to the PTA.
This was the inevitable result of our own ombudsmen’s actions as stolen international mobile phones were then making their way to Pakistan in droves and being sold on the streets openly. Many of them were also being used in terrorist activities especially those with the same IMEI numbers as other phones.
Thus any imported telecommunication equipment requires a Non-Objection Certificate (NOC) from the Pakistan Telecommunication Authority (PTA). A little fact that was lost on us when we ordered and found out a little too late.
Importing Something? Be Prepared for a Massive Headache
Here are some other spine tingling details of what can happen to your orders from online stores :
Shipments will be detained for a maximum of 30 days from the date of arrival. If proper documentation has not been received by this time, the shipment will either be destroyed or confiscated, and subject to fines and penalties. A term for this is ‘Consumed’ and usually ends up in the auction and many times the pockets of custom officials.
Duty and taxes can be applied to all shipments at approximately 53% of the assessed valueof the shipment. This means not the value written on the shipment itself but what the custom’s officer perceives it to be.
Proper documentation must be provided by the consignee for all shipments weighing over 5 kg (11 lb) and valued at US $100 or more for clearance. Packages assessed at 200 USD or lessare only accepted as gifts and not marked for duties / taxes. Otherwise the person will be responsible for clearing all the dues and taxes.
UK authorities finally shipped the iPhone and the shipment was finally received in Pakistan after approximately 10 days.
Here my friend was informed by the Post Office that the parcel had arrived and had been placed in a locker at the Airport. The postman arrived with a blue customs consignment slip which would than become the first document along with the invoice, etc which would have to be submitted to the PTA at this link
Interesting Fact: Tablet PC with Wi-Fi only functionality has been exempted by the PTA as of August 2015 and do not require a NOC anymore
PTA requires the following to be completed in the request for the NOC:
Application stating purpose of use.(if it is for commercial basis, applicant would be asked to apply for type approval to PTA HQ and if the same is for gift or personal use then applicant would be asked to provide documents from serial bg)
Copy of shipment document i.e. airway bill number or GPO letter etc or courier issued receipt containing tracking number etc.
Copy of CNIC or Passport
Copy of commercial invoice
Brand Name and Model Number
Postal Address where the NOC is to be dispatched via Pakistan Postal Services
Quantity identified in a serial order containing brand name, model number and IMEI number against each device.
The fastest way to get the NOC is to email all scanned documents at firstname.lastname@example.org. Thanks to the email, the NOC was received within a week (we are very grateful to the PTA for this service) and then forwarded to customs so the process can actually start.
It took almost another week for the assessment to be made because of the unavailability of the officials sometimes, filings of clearance requests by clearing agent etc. When the assessment came through, the following documents and taxes had been levied on the import:
Godown Rent (calculated on daily basis from arrival of shipment and goes up in tiers).
Tax Payments Receipt which included advance Income Tax.
Inbound Processing Fees
Customs & Duties
All of which added significantly to the shipment and then came the courier’s own charges which were separate from these for handling the process.
After all this, thankfully the phone finally reached my friend’s hands. The moral of the story is: either have a friend or relative hand-carry products to Pakistan (which thankfully is still allowed without too much fuss) or buy these from Pakistan’s own stores since the savings will never materialize (if anything it would have been cheaper and faster to purchase from Pakistan).
Is Our Current Import Setup Discouraging Amazon, AliBaba and Others?
Yet it stands to reason that such processes hamper the rise and interest of cross-border trade in our region. Pakistan may be losing because of these policies and processes specially when it comes to bringing in investments from global Ecommerce giants like Amazon and AliBaba who do require state of the art technology and quick processes to work in the regions they invest in.
Pakistani companies are also not able to compete for the global B2C cross-border e-commerce market which will balloon in size to $1 trillion in 2020. Getting listed on Amazon / Ebay, etc to cater to their millions of customers is almost virtually impossible.
Efficiently handling imports/exports will allow Pakistanis to compete for global B2C e-commerce market as well as increase value for money for local consumers
Cross-border e-commerce is booming, especially in the Asia and Pacific region. In 2013, the Asia and Pacific region rang up $433 billion in e-commerce sales, or one-third of the global total, and outperformed North America. This has created what PayPal calls ‘new spice routes’ with countries trading cross-border when it comes to ecommerce. China alone is responsible for 60% of APAC spend and is due to overtake the US in B2C ecommerce sales around 2016.
All of this also provides employment in such countries, allowing the transportation industry to grow and move goods faster, provide cheaper choices for people to improve their lives and with the global economy still struggling, businesses and exporters can increase their revenue by waking up to cross-border sales opportunities.
Pakistan is missing out on cross border e-commerce in a region that did $433 billion in sales in 2013 alone
The top purchase categories for cross-border shoppers are those that we in Pakistan crave too: clothes, shoes and accessories ($12.5 billion); health and beauty products ($7.6 billion); personal electronics ($6.0 billion); computer hardware ($6.0 billion); jewelry, gems and watches ($5.8 billion); and home electronics ($5.4 billion).
Yet that drive seems to be missing in our elected representatives. In Pakistan, the government’s latest endeavor to get double revenues by increasing the taxes on mobile phone imports in Fiscal Year 2015-16 (FY16’s) budget seem to have failed, as the mobile handset imports fell by 8.49% in the first two months of current fiscal.
Instead of capitalizing on cross border e-commerce, government is focusing on increasing taxes which has resulted in falling imports
According to the latest figures made available by the Pakistan Bureau of Statistics (PBS), the total telecom imports, registering 31% decline, stood at $193.23 million in first two months of FY15 as compared to the $279.22 million of value that stood in the corresponding period of last fiscal when the taxes were more balanced.
Add in the difficulty of the process and it’s no wonder that smuggling is increasing in the country especially when it means that the more scrupulous elements of the departments can become richer at their jobs. Already there have been reports of “books shipments” being “cleared” by such elements only to be found that the shipment contained mobile phones instead but kudos to the law that the perpetrators were caught.
Stamping down on smuggling while ignoring the root cause is short sighted and the government needs a more in-depth approach
Yet whilst such efforts must be applauded, smuggling arises when there is a gap in the market between what is demanded and what is available and the arbitrage is huge. Whilst cross-border transactions can mean back-office administrative headaches, regulatory and compliance woes, steep processing fees, currency conversion overhead, and a markedly increased risk of consumer fraud, for online and offline consumers both buying from and selling to Pakistani consumers, cross-border retailing does holds the promise of easy access to a wide selection of attractively-priced merchandise not available in Pakistan which under the correct policies will be documented, properly taxed and thus will in all likelihood increase the coffers of the government instead of enriching those peddling to the grey market or the unscrupulous elements of the mafia / smuggling chains.
Increasing Revenue While Making Lives Easier? It CAN Happen
Easing Cross Border trade can initiate new innovations in the country. For example, Australian consumers buy more goods (US$6.4 billion) from overseas online shops than from domestic online retailers (US$4.7 billion). To cater to this demand and get a piece of the ever increasing Ecommerce Pie, Australia Post launched a US parcel forwarding service for consumers that gave its customers a US address for sites that did not offer shipping outside the US and for a fix price would deliver those goods directly to the Australian’s home. They offered international delivery and payment services that their own customers could trust. Pakistan Post and / or Pakistani companies can easily promise the same.
In a global economy, there is a need to facilitate a more seamless and a more cost-effective cross-border sales and taxation process, not only to facilitate the people of the country but also because it is in the clear interest of and strategic importance to countries who wish to dominate the future. If anything, cross-border retailers like Amazon and AliBaba who have mostly ironed out the bumps of cross border sales, have shown that countries can get a serious competitive advantage if they are to get this right.
In one “Singles Day” event, AliBaba generated more revenue in 24 hours than the yearly remittances received in Pakistan
Whilst managing duties and taxes is an unavoidable cost of cross-border business, it should be made simple and fast so that the movement of goods across borders is as simple as getting in a car or on a plane. A seamless, simple experience to which most people devote little thought. Not only will this reign in the ‘Grey’ economy but will also help Pakistan’s industries and business grow.
Sadly however, the path to online and offline purchasing across borders is still a bumpy one.
Disclaimer: The views expressed in this article are solely the author’s own and do not represent those of his company, his employers or any other entity.