The Pakistani tyre market is subject to widespread under-invoicing, which continues to lead to smuggling and illegal cross border trade. It’s nothing new, but local news sources are reporting that it is now happening at a “colossal” scale due to the Afghanistan-Pakistan Transit Trade Agreement (APTTA), citing data produced by the Pakistan Business Council (PBC).
Years of under-invoicing and rampant cross-border smuggling are still putting pressure on domestic tyre suppliers in Pakistan. So what’s the solution? Raid tyre markets in big cities instead of trying to stop smuggling along the long Pakistan-Afghanistan border, says General Tyre Pakistan chief executive Mohammad Shahid Hussain.
The CEO of Karachi based tyre manufacturer General Tyre and Rubber of Pakistan, Shahid Hussain, has told Pakistan’s Daily Times that under invoiced imports and smuggling accounts for 57 per cent of local sales for passenger car tyres, 85 per cent for light truck tyres and 97 per cent for truck and bus tyres. These two activities not only impact upon manufacturing capacities at the tyre maker, which incidentally is which is 9.78 per cent owned by Continental and operates a technical service agreement with Continental Tire the Americas; Hussain states it is costing Pakistan’s government around 7 billion rupees (£50.4 million) in lost duties and taxes.
More than six million tyres are purchased in Pakistan each year, but even though local manufacturers are only capable of producing 2.5 million units annually, they are operating at under capacity. The reason for this, believes the head of one domestic producer, is the prevalence of smuggled and under-invoiced foreign brands.
Afghanistan has developed a reputation as a centre of heroin smuggling activity; it is less widely known for another illegal cross-border trade – the smuggling of tyres into neighbouring Pakistan. Yet the importation of these sought after items appears to be well worth the effort and expense endured by those in the business, as the average price difference between the cost of a tyre to a smugger and an importer is said to be in the range of Rs3,000 to Rs5,000 (£22.50 to £37.60). Of the Rs3,000 minimum price difference, smugglers expend about Rs1,000 covering transport and bribe costs, leaving a respectable profit at the end.
Tyre smuggling costs the Pakistan Government 1.25 billion Rupees (US$ 21.73 million) a year in lost import duty and sales tax. An estimated one million tyres are illegally imported, many originating in Japan and India.