Islamabad — Maryam remembers the first time she was asked to pay a customs fee on her online shopping delivery.

“I think it was in July last year,” the Islamabad-based entrepreneur says, as she jogs her memory for details of the incident from 2017.

Maryam recalls she was clueless about the additional charges. Since 2014, she had been ordering items — jewellery, clothes — from AliExpress, the China-based online retail service that connects Chinese small businesses to international buyers.

It had never happened before. Not once in three years had she been asked to pay a customs duty on a free delivery.

But on that summer day in 2017, the postman who delivered the shopping parcel also handed her a receipt and asked her to pay a customs fee if she wanted possession of the item.

“I had no idea that we had to pay customs for small packages, too,” Maryam says.

In the year since then, Maryam claims she has paid Rs. 55,000 as customs duties for AliExpress shopping items worth Rs. 70,000. That is nearly eight rupees of additional charges on every 10 rupees of shopping. It seems exorbitant by taxation standards, but Maryam says she has never challenged the customs fees.

“I actually don’t know how this works,” she says.

In August, Maryam posted a message on a closed Facebook group asking other group members if they knew why she was charged this customs duty. Her post received 90 comments. Several people shared experiences similar to Maryam’s in the comments thread. Others offered explanations. Many thought it was pure luck that some shoppers had not had to pay a customs duty. Yet more people felt the customs office was out to get bribes on international online shopping orders.

Through interviews with AliExpress customers in Pakistan and officials of the Pakistan Post and the Federal Board of Revenue (FBR), Media for Transparency was able to piece together a picture of the online shopping conundrum. Our investigation revealed a combination of negligence, capacity constraints, and lack of co-ordination between two government agencies.

The result is a confusing, non-transparent, and inconsistent practice of customs duty collection from the Pakistani customers of the AliExpress service. Many shopping packages do indeed slip through the cracks in the customs collection infrastructure, creating a “lucky” effect for the buyers. But the authorities also appear to be tightening the noose around online shopping items, and it is likely many more customers will find themselves facing the same situation as Maryam in the near future.

Pakistan’s Growing Online Shopping Market

Experts suggest the Pakistani e-commerce market is growing and is likely to hit $1 billion in sales by the end of 2018, according to news reports.

While most Pakistani online shoppers feel comfortable with local marketplaces that offer cash-on-delivery options, many consumers who can afford pre-payments with credit cards are looking towards international online marketplaces such as AliExpress. A State Bank quarterly report issued in 2018 claims Pakistani consumers made transactions worth Rs. 20.7 billion on international e-commerce websites.

AliExpress seems to have gained some popularity with urban online shoppers due to its free shipping option to Pakistan. It is, however, difficult to estimate the actual number of AliExpress customers in Pakistan.

Media for Transparency submitted requests under the federal Right of Access to Information Act to Pakistan Post and the FBR – the two federal institutions involved in processing international shopping packages such as those sent through AliExpress. The requests asked the two agencies to provide the specific number of AliExpress parcels processed in recent years and the customs duty collected on these parcels.

The Pakistan Post responded to the information request by saying it did not maintain any such record. The FBR has not yet replied to the request.

Some aggregate numbers, however, are available in the public domain. For example, the Pakistan Post annual report for 2016-17 states that postal service received 52,683 insured and uninsured parcels from abroad via different mail delivery systems. The postal service earned around Rs. 4.8 million in commissions on the collection of customs duty and Rs. 4.1 million as commissions on collection of sales tax on these parcels from the FBR, according to the report.

The FBR only disaggregates customs duty collection by types of major import items, such as petroleum or vehicles, in its revenue year books. It is difficult to ascertain the share of international online shopping from the customs duty collection pie.

Nevertheless, the consumer base for international online shopping might increase in Pakistan, and for many of these customers, the process by which their shopping items are delivered to them is unclear.

From AliExpress to your Doorstep

The way online shopping works is now familiar to many Pakistanis. You visit an online store or marketplace (such as the locally operating Daraz.pk or the international AliExpress website), choose the product you want to buy, place an order, and share your payment details.

After payment processing, the seller (sometimes called the merchant or dealer) packs the product, and attaches a sales invoice to the package. The invoice mentions the seller and buyer addresses as well as the weight and the value of the item. The seller then dispatches it to the buyer’s address.

For AliExpress customers in Pakistan, the first stop for the package is an International Mailing Office (IMO) in the country. All international mail is first received by the IMO. There, mail collectors separate the letters from the parcels. The AliExpress packages are shifted to the parcels queue. The parcels are then passed to a customs office of the FBR housed inside the IMO.

The customs officers inspect whether the items in the parcels are subject to customs duty or not. They typically divide the parcels into two categories: gifts and shopping.

According to an FBR customs collector, gifts are identified through the customs declaration receipts affixed to the parcels. These receipts usually declare that the items in the parcels are gifts of no commercial value. However, according to the customs collector, if the customs officer in the IMO believes that the actual value of the gift plus its postal insurance is more than Rs. 20,000, they consider the parcel to be subject to a customs duty.

Shopping packages are easier to identify because of the sales invoice, which usually states the seller or merchant’s name and address. The invoice also communicates the value of the shopping item to the customs officers.

The customs officers are allowed to open the packages but the Pakistan Post staff is not, according to the IMO officials. The customs officers can open the packages if they believe the declarations are untrue or to check if the packages contains prohibited items. Once a parcel is open, the officer can match the item to its declared value.

According to Section 25 of The Customs Act 1969, if a customs officer suspects that the declared value is untrue, the officer may match the item’s value with identical goods or similar goods being sold in Pakistan at commercial level or derive a value by calculating the material costs.

“We (the custom officers) can appreciate the real value and calculate the implying custom on that but we can never depreciate it,” says the customs collector, who wished to remain anonymous because the collector was not authorised to speak with the media.

Once the customs officers are certain about the item’s value, they apply the customs duty to it.

But a customs duty is not the only type of tax applied to goods subject to customs.

The Types of Tax on Imports

Goods subject to customs are charged with four types of tax. Chief among these is the customs duty, but there is also a sales tax, a regulatory duty (for imported items already available in Pakistan), and a withholding tax (deducted at source). There are also an additional sales tax and an additional customs duty, both of which are applied in special circumstances to discourage imports to Pakistan.

The percentage of each duty or tax is provided in an FBR tariff book, which is updated annually. The customs duty and other taxes are applied through a cumulative tax collection formula, according to the FBR customs collector. This means that each new tax is applied to the sum of the item’s value and the amount of the previous tax. For example, if a 2% customs duty is applied to an item worth Rs. 1000, the customs duty comes out to be Rs. 20. The next tax will be calculated out of Rs. 1,020 (Rs. 1,000 + Rs. 20), rather than the original item value of Rs. 1,000.

Once these taxes are calculated, the parcels are repackaged by Pakistan Post staff into their original packing and dispatched to the post distributor who writes the customs duty and other taxes as calculated by the customs officers on a Pakistan Post receipt and sends the parcels off for delivery. These charges are to be paid by the customer upon receipt.

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If the customer refuses to pay the customs duty, the postman takes the package back to the post office. If the package is not claimed within two months, it is sent to the regional customs office where it is put up for auction. In such cases, the buyers lose the payments they made to AliExpress.

“I cannot even return the items, in Pakistan or AliExpress as the portal claims it is not their responsibility to know about the customs (regulations) in Pakistan nor is there a way to do anything about it in Pakistan,” says Maryam, the Islamabad-based entrepreneur who has had to pay thousands in customs duties for her AliExpress shopping.

But not every disgruntled AliExpress customer follows Maryam’s non-confrontational approach.

Inconsistent Duty

Director International Postal Service Hafiz Shakil Ahmed Qureshi says his office is flooded with complaints from customers who challenge the customs duty on their international shopping parcels. Mr. Qureshi says he brought the issue up during a meeting between Pakistan Post and FBR officials.

“They said that these items are imports even if they are small packages and will be treated like other imports in the country,” Mr. Qureshi tells Media for Transparency.

He says no detailed explanation was provided by the FBR. But it is clear the AliExpress shopping packages are being considered as imports by the customs officials.

The customs collector who spoke with Media for Transparency on condition of anonymity says the workload of customs officers has increased because they are trying to apply customs to all shopping packages.

“People come and fight every day with the customs officers at the IMO, questioning the customs duty applied,” the collector says. “There is a lack of education about laws, every country has custom duties that are how we run the revenue.”

The FBR claims belie the reality. According to eight frequent AliExpress shoppers who spoke with Media for Transparency, not everyone has been charged customs duty for all the packages they received. So why is this discrepancy that only some AliExpress shoppers are charged a customs duty?

An official at the Pakistan Post Office says the postal service cannot say why all parcels are not charged because it is the job of the customs officers. The customs collector, familiar with the IMO, says FBR is not the custodian of the mail and the discrepancy arises in the way the international mail is sorted by the postal workers. The collector claims Pakistan Post does not hand over all the possible packages.

“It is their job to give us the parcels,” the customs collector says. “We are not the custodians of the packages hence it does not fall on us if packages aren’t charged, yet we are working on resolving the issue.”

If an AliExpress shopper has gotten away with customs duty for a shopping item, it is because the IMO made a mistake, the collector says.

“By law, everyone who receives anything from abroad has to pay a customs duty,” the collector says. “We noticed that not all packages were being custom screened and we are working on resolving that now.”

Outmoded Receipts

Maryam also finds the authenticity of the Pakistan Post receipts questionable.

“I, of course, do not like paying Rs. 1,500 for an item that cost me 90 rupees,” she says. “The receipt has no information as to how and why I was charged double or triple the mentioned cost.”

She says she only shops for random items and does not make bulk purchase from AliExpress.

“I find it unfair,” Maryam says.

She calls the receipts “scribbled handwritten parchi(s)” and that is a fair characterisation.

Media for Transparency witnessed around 20 receipts where AliExpress customers in Pakistan were charged some dues under a “Refugee Tax” head.

Even the customs collector Media for Transparency spoke with was surprised to see the Pakistan Post receipt attached to AliExpress packages that have been charged customs duties.

“We give them the rates under the customs duty labels,” the customs collector says. “I do not know when this receipt was printed because the refugee tax does not even exist anymore.”

Mr. Qureshi, the Director International Postal Service, says he will look into the matter and get new receipts printed.

“These were printed years ago,” he says. “It is the right of our customers to know what they pay for.”