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Leaders
6 days ago
- Business
- Leaders
GASTAT Reports 13.4% Growth in Non-Oil Exports in Q1 2025, 10.7% Increase in March
The General Authority for Statistics (GASTAT) has released its International Trade Statistics bulletin for March 2025 and the first quarter of the year (Q1 2025), highlighting continued momentum in Saudi Arabia's non-oil exports. According to the report, non-oil exports—including re-exports—rose by 13.4% in Q1 2025 compared to the same period in 2024. In March 2025 alone, non-oil exports were up by 10.7% year-on-year, reinforcing the growing contribution of non-oil sectors to the Kingdom's international trade. In contrast, total merchandise exports declined by 3.2% in Q1 and by 9.8% in March, compared to the same periods in 2024. Merchandise imports saw an upward trend, increasing by 7.3% in Q1 2025 and by 0.1% in March year-on-year. Despite this, the trade balance surplus narrowed—falling by 28% in Q1 and 34.2% in March. The ratio of non-oil exports to imports improved, reaching 36.2% in Q1 2025 (up from 34.3% in Q1 2024) and 36.5% in March (up from 33% in March 2024). Meanwhile, the share of oil exports in total merchandise exports declined to 71.8% in Q1 2025 from 75.9% the previous year, and to 71.2% in March, down from 76.5% in March 2024. Moreover, chemical products led non-oil exports, making up 23.8% of the total in Q1 and 25.7% in March 2025. On the import side, machinery, electrical equipment, and parts were the most significant, accounting for 25.8% in Q1 and 26.1% in March. China, Saudi Arabia China remained Saudi Arabia's top trading partner, representing 15.7% of total exports and 26.6% of imports in Q1 2025. In March. Additionally, China's share stood at 15.5% of exports and 25.3% of imports. GASTAT noted that the international trade data are compiled using administrative records from the Zakat, Tax and Customs Authority for non-oil figures, and from the Ministry of Energy for oil-related data. Commodity classifications follow the 2022 Harmonized System (HS) codes. Related Topics: NWC Delivers Major Water Infrastructure Projects in Jeddah Aqualia, NWC Redefine House Connection Services in Saudi Arabia NWC Initiates SAR 1 Billion Water, Environmental Projects in Riyadh Saudi Arabia Launches 'Cultural Innovation Challenge' for Policies Design Short link : Post Views: 1
Forbes
28-04-2025
- Business
- Forbes
AI For Product Classification: Can Machines Master Tax Law?
E-commerce, internet online shopping and delivery concept. Product classification may sound like an obscure, back-office task that only concerns customs officials or tax accountants. But in reality, it is a cornerstone of tax and customs compliance for businesses of all shapes and sizes, whether they sell goods, services, or both. Accurate classification ensures that the right tax rates, duties, and exemptions are applied, helping companies avoid costly errors, audits, and penalties. When we think about product classification, we often picture long spreadsheets filled with codes like "HS 8471.30" or "HTSUS 0101.21." These codes come from global systems such as the Harmonized System (HS) and its regional versions, like the Harmonized Tariff Schedule of the United States (HTSUS) and the European Union's Combined Nomenclature (CN). They create a common language for classifying goods in international trade and applying the correct import taxes and duties. But product classification is not only about international trade. Even domestic sales require assigning the right tax rate to products and services. Businesses that rely on tax engines or accounting systems often use tax codes—alphanumeric identifiers that tell the system whether a product is taxable, exempt, or qualifies for a reduced rate. In other words, classification is everywhere, touching every invoice and tax return, often without anyone outside the finance team noticing. Getting product classification wrong is not just a small technical mistake. It's more like planting a tiny bug in your company's software that quietly replicates itself until it's everywhere. A single misclassified product can flow undetected into invoicing, accounting, financial reporting, and tax filing systems. Each platform, trusting the information it receives, passes the error along until one day, the mistake is discovered—usually by a tax auditor, and often with a hefty bill attached. Errors in product classification can result in underpayment or overpayment of taxes, incorrect financial statements, and reputational damage. It can also mean years of retroactive corrections and fines. In short, it's a nightmare scenario that every CFO wants to avoid. Historically, product classification was done manually. Tax professionals would comb through product descriptions, technical specifications, and usage details, then use their knowledge of tax laws to assign the correct codes. This method required deep expertise, meticulous attention to detail, and endless patience. And unsurprisingly, it was slow and prone to human error. Enter artificial intelligence. AI systems today can analyze vast amounts of product data—including descriptions, specifications, and images—to suggest accurate tax classifications. Hybrid systems that combine text and image analysis have become especially effective, as pictures can help clarify ambiguities that plain text struggles to resolve. By learning from historical data and classification patterns, AI can help reduce human error, speed up the classification process, and handle enormous product catalogs with ease. It sounds like a dream, doesn't it? But before you envision a future where AI bots run the entire tax department, it's important to ask: Can AI truly master the complex, nuanced world of tax classification? Not every product fits neatly into a predefined category. Products that have multiple uses or complex components often fall into tax gray areas that require subjective judgment. Take smartwatches, for example. Should they be classified as wristwatches or as communication devices? If the primary function is telling time, they belong in one category. If it's making calls or sending messages, they belong to another. Similar dilemmas arise with multifunction printers, which could be classified either as printers or photocopiers depending on their main function. Even seemingly simple products can turn into legal puzzles. Different countries and regions have their own classification quirks, often leading to results that defy common sense. The "Subway" case in Ireland is a famous example: the Irish Supreme Court ruled that Subway's bread contained too much sugar to legally qualify as "bread" for VAT purposes. Meanwhile, across the Irish Sea in the United Kingdom, there's a £470,000 tax battle over a surprisingly squishy question: Are Mega Marshmallows sweets? This question matters because most food in the UK is zero-rated for VAT, but confectionery—sweets, chocolates, and the like—is taxed at 20%. According to the law, anything "sweetened and normally eaten with the fingers" counts as confectionery. Initially, the First-Tier Tribunal sided with the marshmallow company, arguing that Mega Marshmallows are so large that they are more of a barbecue ingredient than a snack you casually pop into your mouth. However, HMRC was not satisfied and continued to appeal up the court ladder. Eventually, the Court of Appeal weighed in, stating that the lower court had overlooked a crucial point: how people actually eat Mega Marshmallows. If most consumers simply eat them with their fingers straight out of the bag, then they qualify as sweets—and yes, the 20% VAT applies. Now, the case is heading back to the tribunal (once again) to resolve the big question: Are Mega Marshmallows normally eaten with fingers, or are they typically roasted first? These examples highlight a crucial point: product classification is not purely technical. It is a legal process that often depends on interpretation, usage, perception, and even cultural habits. While AI can process millions of data points faster than any human, it may struggle with the subtle, context-dependent reasoning needed to resolve such cases. Recent scientific research backs up these concerns. Studies have shown that zero-shot product classification—where an LLM tries to categorize without seeing examples beforehand—works reasonably well, but still struggles with ambiguous, or domain-specific product categories. Despite its impressive capabilities, AI is not yet capable of fully replacing human expertise when it comes to product classification. Complex legal interpretations and the need for nuanced judgment on intended use and function mean that humans are still needed at the controls. For instance, AI can easily classify a chair as a chair. But can it determine whether a reclining massage chair equipped with heat sensors should be taxed as furniture, medical equipment, or luxury electronics? That requires understanding the product's design, intended use, marketing claims, technical specifications, and often, the applicable case law. In short, AI can automate the routine—scanning descriptions, suggesting matches, flagging inconsistencies—but it cannot (yet) automate the judgment, interpretation, and creativity that human tax professionals bring to the table. Leveraging AI in VAT determination is much like using a navigation system during a storm. Technology offers vital assistance, but experience and intuition guide critical decisions. The future of product classification is not about choosing between humans and machines. It's about collaboration. AI can and should handle the heavy lifting: processing millions of product descriptions, highlighting likely matches, and spotting potential errors. This frees up human experts to focus on the challenging, high-value tasks that require experience, judgment, and an understanding of legal context. Let AI handle the volume, and humans handle the nuance. One promising development from recent research is the idea of blending AI models with external sources of information, such as knowledge graphs or retrieval-augmented generation (RAG) systems. Instead of expecting AI to "know everything," we help it access richer, curated domain knowledge. As AI continues to evolve, it will be fascinating to see just how far we can push the limits. But for now, when it comes to navigating the fiscal theme park that is modern tax law, it's still wise to keep a few experienced humans on hand—just in case the machines need a little help reading the menu. At the same time, it's worth asking a more fundamental question: before we rush to deploy increasingly complex AI systems to manage tax rules, are we addressing the root of the problem? Building layers of technology to manage an already overwhelming web of legal distinctions is, at best, a reactive strategy. It is like constructing a labyrinth and then inventing smarter and smarter tools to find the way out. Perhaps, instead, we should ask whether the labyrinth needs to be so complicated in the first place. If tax classification systems were simplified, standardized, and made more intuitive, we could dramatically reduce the need for technological aids—and maybe save a few Mega Marshmallows along the way. The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.
Business Recorder
22-04-2025
- Business
- Business Recorder
KCCI urges FBR to adopt pragmatic, tech-driven approach
KARACHI: President Karachi Chamber of Commerce & Industry (KCCI), Muhammad Jawed Bilwani has expressed serious concern over the erroneous classification of taxpayers as "non-active" by the Inland Revenue Service (IRS), despite the Federal Board of Revenue (FBR) having officially extended the sales tax return filing deadlines for February and March 2025. 'It is deeply troubling that numerous taxpayers are being unfairly labelled as inactive solely due to delays in filing returns for two consecutive periods, even though official extensions were granted,' stated President KCCI Muhammad Jawed Bilwani. 'This is causing unnecessary difficulties for honest taxpayers who are already trying to comply with the ever-changing regulatory environment.' President Bilwani underscored that the sales tax return filing system is under immense strain, largely due to a series of recent and abrupt changes. 'The FBR's decision to extend the deadlines clearly reflects that the system is struggling to cope. Yet, instead of facilitating the taxpayers, they are being penalized, which is counterproductive,' he emphasized. Commenting on the technical difficulties faced by taxpayers, President Bilwani noted, 'Over the past few months, FBR has introduced mandatory requirements such as eight-digit Harmonized System (H.S.) codes, precise units of measurement, and several new annexures like 'H-1', 'J', and 'C-1' in sales tax returns.' He elaborated that while imported items can be easily linked with H.S. codes from Goods Declarations, manufacturers of local goods are facing major challenges. 'Many local producers are simply unaware of the correct H.S. codes for their products. The same item being assigned different codes by different suppliers is creating unnecessary confusion and inconsistency,' he said. President Bilwani urged the FBR to reconsider this approach. 'Instead of placing the burden of identifying specific H.S. codes on taxpayers, the system should allow taxpayers to describe the item and then automatically assign the appropriate H.S. code. This would reduce confusion and improve standardization,' he suggested. Highlighting another technical limitation, President Bilwani criticized the restriction of unit measurements to kilograms (K.G.) only. 'This is highly impractical. A dropdown menu should offer all standard units of measurement. If needed, the tax department can always request clarification at a later stage instead of enforcing rigid input criteria,' he proposed. Addressing the sudden implementation of new annexures, he cautioned, 'Annex 'J' concerning production data and Annex 'H-1' related to stock reporting by non-manufacturers should not be enforced abruptly. These should be phased in with proper educational support through seminars and workshops, rather than being thrust upon taxpayer's mid-year.' President Bilwani also highlighted the inconsistency between the legal status of filing extensions and the current behaviour of the IRS system. 'It is legally inappropriate to declare a taxpayer inactive for failing to file returns during months for which official extensions have already been granted. This mismatch between policy and system enforcement is deeply unfair and must be rectified immediately,' he asserted. He concluded by urging the FBR to adopt a more pragmatic, technology-driven, and taxpayer-friendly approach. 'The current system creates undue hardship for compliant businesses. It is essential that reforms are introduced with proper planning, consultation, and support mechanisms to ensure fairness and ease of doing business,' said President Bilwani. Copyright Business Recorder, 2025
Business Recorder
22-04-2025
- Business
- Business Recorder
Taxpayers irked as IRS incorrectly marks them as ‘non-active'
ISLAMABAD: The 'IRS' system of the Federal Board of Revenue (FBR) is incorrectly marking taxpayers as 'non-active' despite the recently extended deadlines for filing sales tax returns in February and March 2025, it was learnt. This has created a panic like situation among the business community. A number of taxpayers have raised concerns about being labelled as 'Inactive' due to not filing their sales tax returns for two consecutive periods, creating unnecessary hassle. It has become evident that the sales tax return filing system is struggling significantly after the implementation of numerous recent changes. Consequently, the Federal Board of Revenue (FBR) extended the filing deadlines for February and March 2025. Sales tax, federal excise: FBR extends date of filing returns Explaining the issue, a leading Karachi-based sales tax expert, Arshad Shehzad, informed over the last couple of months, the FBR has introduced mandatory requirements for an eight-digit Harmonized System (H.S.) code, units of measurement, as well as, Annexes introduced new annexure 'H-1', 'J', and 'C-1' in sales tax returns. Arshad Shehzad explained that taxpayers must now provide an eight-digit H.S. code for every item sold. While it is straightforward for imported items, where taxpayers can easily reference the H.S. code from the import Goods Declaration (G/D), problems arise for locally manufactured goods. Many manufacturers are not familiar with the proper H.S. codes for their products. Furthermore, discrepancies in H.S. codes reported for the same item by different suppliers create significant confusion among taxpayers. Shehzad strongly advocates that the board should shift its focus from requiring specific H.S. codes to demanding clear descriptions of items. The system should then automatically assign the appropriate H.S. codes based on these descriptions, effectively reducing the burden on taxpayers and ensuring uniformity. In addition, he highlighted the issue with limiting unit of measurement reporting to only kilograms (K.G). He firmly believes that all units of measurement should be made available in an electronic dropdown menu, eliminating unnecessary complications. The tax department can always have ample powers to seek clarification for any issues regarding units of measurement at any subsequent stage if required instead of being tied to restrictive reporting requirements. The introduction of Annex 'J,' which pertains to production data, and Annex 'H-1,' which relates to stock reporting by entities other than manufacturers, should be implemented in a phased manner. This approach should include seminars and workshops to provide the necessary education and support, rather than imposing these changes abruptly in the middle of the tax year. Copyright Business Recorder, 2025
Forbes
11-04-2025
- Business
- Forbes
Let's Implement Tariffs In A Way That Reduces Tariff 'Sludge'
If appropriately implemented, new tariffs could reduce 'sludge.' Sludge is a term the podcast 'Freakonomics' applies to unnecessary complexity that makes life more difficult and stressful. Sludge raises costs and distorts the efficient operation of an economy. No area of any economy may have more sludge than tariff classification. A specific tariff involves a fixed fee levied on one unit of an imported good. This tariff varies according to the type of goods imported. For example, a country could levy a $15 tariff on each imported shirt but a $250 tariff on every smartphone. The phrase "ad valorem" is Latin for "according to value." This type of tariff is levied on a good based on a percentage of that good's value. An example of an ad valorem tariff would be a 10% tariff levied by the European Union on U.S. automobiles that come complete with internal combustion engines. Thus, for a $50,000 car, the tariff would be $5,000. In contrast, the US has levied a tariff of 2.5% for the same goods from EU entering the US. A compound tax is a combination of both specific and ad valorem tariffs. In the case of China, the Trump administration is proposing very high ad valorem tariffs imposed on top of the existing specific tariffs. However, if ad valorem tariffs are going to be significant, why even have specific tariffs? This is an opportunity to reduce trade sludge. Specific tariffs are based on the international Harmonized System. This is a global system of nomenclature that is used to describe most world trade in goods. This is maintained by the World Customs Organization. Virtually all countries base their tariff schedules on the WCO's Harmonized System. HS codes are six-digit codes. The Harmonized Tariff Schedule of the United States is based on the harmonized system. This is the primary resource for determining customs duties classifications for goods imported into the United States. The Harmonized Tariff Schedule classifies a good based on its name, use, and/or the material used in its construction and assigns it a ten-digit classification code number. The HS code is a subset of the U.S.'s tariff schedule - the first six digits are the same. There are over 17,000 unique classification code numbers in the U.S. But worse than the sheer number of classification codes is the complexity. Using the right HS code allows companies to pay the correct tariffs. Paying the right tariffs is necessary to avoid hefty government fines as well as to protect brand reputation. The problem is an incredible gap between how products are described commercially and how they are expressed in the national customs tariff schedules. To say that HS codes are non-intuitive would be a massive understatement. What a regular person would describe as 'baby food' in HS speak is known as a 'homogenized composite food preparation;' a 'hair blower' is an 'electrothermic hairdressing apparatus;' before you can classify 'rayon,' you have to know whether this is an 'artificial' or a 'synthetic' fiber; and if you were classifying an automotive part, like a car alarm, you might think you would go to the section of the HS code focused on automobiles, but no – this is an electronic signaling device. This has resulted in historic error rates of up to 30%. Global trade management systems leveraging AI do reduce classification errors. How much is unclear. Further, the application of AI to GTM solutions comes with challenges. First, the AI's output is only as good as the data input. Data cleansing can help, but often, improving data quality will require supply chain partners to get involved. Freight forwarders may fear that collaboration could lead them to become an unnecessary middleman. The bigger the model, the better the AI model. A global trade management solution has components for electronically messaging trade authorities with documents on the number of imported goods and their classification, process workflow, and an updated database of how the tariffs should be applied to specific products. The best databases for trade content are built using a public cloud architecture. In other words, the database is shared by all the customers using a particular GTM solution. This allows for much, much larger AI models. However, public clouds do significantly increase the need for strong cybersecurity. AI can also have a 'black box' problem where users don't understand how the answer was generated. If a trade professional does not understand the logic, they are unlikely to use it. Further, if a shipper does get audited, it is important that the GTM system provides an audit trail that shows how goods were classified with a logic tree that explains why the goods were classified that way. In many jurisdictions, this audit trail demonstrates 'good faith' and means that even if a declared good was misclassified, the company would be given credit for exercising diligence and would thus be likely to avoid the most severe penalties. More likely, they would not be penalized at all. Many shippers, if audited, have no ability to explain why they classified goods as they did. Black box AI has the same problem. For significant ad valorem tariffs, there is an opportunity for simplification. However, trade classification is not the only contributor to trade sludge. The White House issued an executive order explaining their rationale for reciprocal tariffs and why trade disparities are a national emergency. They pointed to non-tariff barriers that make it harder for U.S. firms to export goods. Non-tariff barriers include import barriers driven by licensing restrictions, unnecessarily restrictive quality standards on goods or technical regulations, sanitary measures that restrict trade without furthering safety objectives, and several other categories of restrictions. One goal of the tariffs is to negotiate reductions in these non-tariff barriers.
