The Faceless Customs Assessment (FCA) system, launched by Prime Minister Shehbaz Sharif in Karachi last year to curb corruption, has resulted in a revenue loss of around Rs100 billion within three months, an internal audit of Pakistan Customs has revealed.
The audit, conducted by the Pakistan Customs Audit wing of the Federal Board of Revenue (FBR), reviewed operations between December 16, 2024, and March 15, 2025.
Its 161-page report noted that the scrutiny of 13,140 goods declarations (GDs) uncovered discrepancies in 2,530 GDs, raising concerns over assessment quality, compliance gaps, and revenue leakage.
The report clarified that it did not cover 100 percent of FCA operations. Of the GDs reviewed, 76 percent were cleared through the red channel, 18 percent through the green channel, and six percent via the yellow channel.
System weaknesses, employee inefficiencies, under- and over-invoicing, and widespread trade-based money laundering were all highlighted in the analysis.
The audit also cited suspicious practices by solar panel importers. It noted that shipments imported in 2023 were cleared more than a year later, an apparent exploitation of advance knowledge about the FCA’s launch.
Important discoveries included the clearance of banned items valued at Rs10.54 billion in 1,006 GDs, the loss of statutory fines of Rs2.43 billion, and duty/tax evasion of Rs5 billion across 1,524 GDs, all of which violated intellectual property conditions.
It was reported that the failure to frame cases involving duty/tax evasions of Rs1 million or more resulted in another possible revenue loss of Rs30.364bn.
The audit also exposed fiscal fraud in the cancellation of assessed/finalised GDs. These involved duty/tax evasions and fraudulent clearances of solar panel containers using unauthorised tax numbers, raising money laundering concerns. According to the report, applying the minimum statutory fine slab of 20 percent under SRO 499(I)/2009 should have generated Rs53.549bn.
In practice, only Rs3.480bn was imposed and collected from 308 contravention cases. Even in cases with higher duty/tax evasions, the potential loss remained at Rs30.364bn.
The Directorate General of Pakistan Customs noted that resource and time constraints forced reliance on transactional audits rather than broader entity-based scrutiny.
Additionally, it said the audit’s scope was limited to GDs involving duty and tax payments, limiting detection of revenue-sensitive issues.
A used Toyota Land Cruiser worth Rs10 million that was cleared for just Rs17,635 was one among the worst violations of the FCA that were highlighted in the report.
The misdeclaration was flagged as a potential case of trade-based money laundering, where illicit payments may have been routed through hawala/hundi channels instead of official remittances.
“The case reflects a serious risk of Trade-Based Money Laundering (TBML). By declaring such a nominal purchase amount, the importer appears to have circumvented financial scrutiny, potentially paying the true cost through unofficial or illicit channels as the declared value of the vehicle had to be paid through remittances originating from foreign countries.”
In case of failure to substantiate that the actual value of the vehicle was paid through foreign country sources, it can raise concerns with regard to funds transferred through illicit channels involving hawala/hundi, a common hallmark of TBML schemes.
The audit identified a wide range of discrepancies, including misclassification of HS Codes, misdeclaration of values, non-application of valuation rulings (VRs), violations of SROs that granted inadmissible concessions and exemptions, as well as short payment of sales tax on retail prices.
A pattern of fiscal fraud was found during the post-clearance examination of GDs that were cancelled. The scheme was to cancel assessed or finalized GDs and cancel them in order to evade paying taxes and duties. Importers initially filed GDs by declaring false product descriptions, HS codes, and values.
When assessments flagged adverse findings involving duty and tax evasions, instead of paying the amount due, the importers requested cancellation of GDs.
These cancellations were allowed. After a gap of a few days or weeks, the same importers refiled GDs with the same wrongful declarations, but this time the goods were assessed at lower duty and tax rates. This allowed them to evade payments while also avoiding statutory fines.
Numerous cases of imprecise product descriptions were also discovered during the assessment. As a result, the value assessments were lower. Such incidents became extremely challenging to identify at the post-clearance stage because the department and the assessing officers who accepted the lower values were mostly at fault.
This shifted the burden of proof back onto the department to establish misdeclaration. A major case involved 54 solar panel containers belonging to five bogus importers. These shipments, manifested in 2023, were fraudulently cleared through 28 GDs between December 2024 and February 2025.
The clearances were carried out under different and unauthorised NTNs and Customs User IDs, reflecting exploitation of both the FBR’s Registration Module and the Customs Computerised System.
The fact that some of these importers had already been arrested in other cases is even more concerning. They portrayed themselves as low-level workers with incomes of just Rs30,000.
“This forms part of the broader solar panel money laundering scam already a high-profile case reflecting a serious systemic lapse.”
The audit further highlighted that the increasing reliance on the green channel, now covering nearly 60 percent of imports and 85 percent of exports, was steadily reducing the scope of pre-clearance controls.
Additionally, the report pointed out that limiting visibility of GD particulars under the FCA weakened the quality of pre-clearance assessments.
The audit observed that modern customs administrations generally operate on the principle of “front-end facilitation with back-end control,” and maintaining an optimal balance between the two is critical.
“In Pakistan Customs’ case, front-end facilitation without proportionate back-end oversight has created a structural lag in the taxation framework, escalating both revenue and compliance risks,” the audit said, adding that the green channel itself had become a risk area.
