Impact of Digitalization on Trade Facilitation and Revenue: Evidence from Pakistan

This paper traces the trajectory of digitalization and innovation reforms undertaken by Pakistan Customs to facilitate cross-border trade, with special focus on Faceless Customs Assessment (FCA), the latest initiative of the Government of Pakistan under the Prime Minister’s Transformational Plan for FBR. Data of over 144,000 goods declarations (GDs) of red (non-facilitated) and yellow (semi-facilitated) categories filed in 180 days, pre-intervention ninety days, and ninety days post-intervention, is analysed to assess the impact of this initiative on trade facilitation and quality of assessments. Pre-post data of assessment time, documents calling, and referrals to physical examination, reviews filed, and clearance-related complaints are evaluated to assess the impact on trade facilitation. The results conclusively suggest that under the new initiative, trade facilitation has increased remarkably. For determining the impact on the quality of assessments, analysis of assessed value (AV) vis-a-vis declared value (DV) is conducted. The results suggest that revenue did not witness any dip, and the quality of assessments improved due to FCA intervention. The positive impact on revenue (collected as additional revenue), though marginal in comparison with the increase in trade facilitation, further confirms that the quality of assessments has increased in the post-intervention period. Impliedly, it also suggests that the quantum of import-stage lost revenue through undervaluation and collusion is much less than generally perceived and reported in the press. The paper argues that the abolition of interaction between the assessors and customs brokers, embedding an element of anonymity in the process of assessment of GDs, and innovation in the internal management of the organization, are the key determinants of the positive outcomes. AI-driven risk evaluations and assessments of GDs and the use of a Blockchain-based framework are suggested to further enhance trade facilitation and to improve the quality of assessments.