Tag: FBR

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.

In a bid to reinforce transparency and institutional accountability, the Federal Board of Revenue (FBR) has launched a sweeping crackdown on the misuse of its digital auction system for confiscated vehicles.

The initiative follows alarming revelations in July regarding irregularities within the auction module of the WeBOC – tax watchdog’s web-based platform – originally introduced in August 2021 to streamline the clearance and registration of smuggled vehicles sold through official auctions.

Designed to allow Motor Registration Authorities (MRAs) to verify auctioned vehicle details online, the system was meant to reduce manual errors and prevent document manipulation. However, recent findings exposed serious breaches: out of 1,909 vehicles listed in the system, 103 were fraudulently entered using fake user credentials. Of these, 43 vehicles were successfully registered by MRAs, giving them a false veneer of legitimacy.

The probe has revealed a broader network of collusion involving car dealers and officials from registration authorities. In response, FBR has suspended two senior Customs officials — one deputy collector and one assistant collector — whose credentials were exploited in the scam.

Recognising the scale of the fraud, FBR has called for the formation of a Joint Investigation Team (JIT) comprising representatives from the Federal Investigation Agency (FIA), Customs, and intelligence services.

The JIT began its inquiry following a formal complaint filed by FBR on July 10.

On August 28, the FIA registered a First Information Report (FIR) against the implicated officers. To date, Customs Enforcement has filed seven FIRs and arrested 13 individuals linked to the scheme.

In an official statement, FBR reaffirmed its commitment to rooting out corruption. “We remain fully committed to upholding the integrity of public service at all levels and at all costs,” it said.

To the great relief of the business community, the Federal Board of Revenue (FBR) has clarified that cash deposits made by buyers into a seller’s bank account will now be treated as valid payments under the Income Tax Ordinance, 2001. According to reports, the clarification pertains to a newly added clause in Section 21 of the Ordinance.

The clause in question stated that 50 percent of business expenditures on the sale of goods exceeding Rs200,000 on a single invoice would be disallowed for tax purposes. Reports revealed that this disallowance was to be enforced if the buyer failed to make the payment through a formal banking channel.

Initially, reports hinted that transactions would be subject to the tax disallowance unless the buyer directly transferred the funds to the seller’s account from their own bank account. This implied that cash sales and depositing cash into a seller’s account for goods worth over Rs200,000 would result in the 50 percent disallowance rule.

However, the FBR has confirmed that deposits into the seller’s bank account will be considered as a valid payment. As such, the disallowance will not be applied to such transactions.

As per the FBR, this would allow more businesses to transition and integrate into the formal economy, shifting away from cash transactions. The revenue watchdog reportedly acknowledged that cash deposits into the seller’s accounts will continue to remain a legitimate transaction method. 

The clarification by the FBR came after mounting pressure from business communities as businesses logged their frustrations against this law via protests in July 2025, as it resulted in an increase in their taxable income. As per recent reports, some members of the business community believed that the FBR was able to meet its revenue target for the first month of fiscal year (FY) 2025-26 at their expense.

The FRB reportedly surpassed its collection target for July 2025, by collecting Rs755 billion in revenues against the monthly target of Rs748 billion. Reports suggest that this was made possible by an improvement in indirect tax collection.

Data from reports indicates that the collection figure for the first month of FY 2025-26 was Rs96 billion higher compared to the corresponding period last year. This marks almost a 15 percent improvement in YoY revenue collections. If the FBR continues to generate revenues as it did in July 2025, it would help rubbish claims that the FBR met its revenue target because of the tax disallowance clause in the income tax ordinance.

Following an incident of misbehavior by an officer of the Federal Board of Revenue (FBR), reportedly involving an unregistered car with an FBR logo, the revenue watchdog has instructed field formations to comply with Standard Operating Procedures (SOPs). According to reports, these SOPs concern the use of the Honda City cars which the FBR has recently purchased.

Reports reveal that instructions were sent to a comprehensive list of officials, including Collectors of Customs, Chief Commissioners of Inland Revenue and Director Generals. The FBR was pushed to issue the instructions after traffic police stopped an unregistered car with no number plate in Karachi that bore the logo of the FBR on its body. 

As per reports, an Assistant Commissioner of the FBR was operating the car and began to misbehave with the police officers during the routine traffic stop. The FBR however, has condemned the act by issuing a letter that outlined that public officials are to conduct themselves with restraint, dignity and professionalism.

More importantly, the FBR has highlighted that violations of vehicle usage guidelines will not be tolerated regardless of the circumstances. As such, the board has called for all officers to follow all SOPs as non-compliance sheds negative light on the institution.

To prevent any such instances from occurring in the future, an internal meeting concluded that the new, unregistered, cars can only operate after receiving formal approval. Officials present at the meeting also prohibited the unnecessary use of FBR’s cars.
 
According to reports, any officers found to be involved in the misuse of operational vehicles will face severe disciplinary action. It merits a mention the FBR made special mention of the misuse of cars bearing an FBR logo and that the use of such cars will bring forth consequences.

The FBR has also warned against the installation of certain modifications on its cars. As per the details, the board has mandated that its vehicles must not have tinted windows. 

Reports reveal that the FBR has made the effort to instruct heads of field formations to review all relevant SOPs with their teams. This could allow for officers to learn how to conduct themselves with professionalism, especially in public settings.

The Honda City cars in question here are part of the FBR’s latest acquisition of motor vehicles. Earlier this year, the FBR placed an order of 1,010 Honda city cars worth approximately Rs6 billion.

An official from the Federal Board of Revenue (FBR) has reportedly rubbished claims circulating on the media regarding the imposition of a staggering 20.5 percent tax on cash sales transactions exceeding Rs200,000. According to reports, these false claims came about after lawmakers introduced an amendment in the Finance Bill 2025.

Earlier this week, reports incorrectly claimed that for cash sales transactions larger than Rs200,000, the FBR would charge an “additional tax” of 20.5 percent on the entire amount. This means that for a cash sale transaction of Rs200,001, the FBR would have generated approximately Rs41,000 in revenues. Similarly, tax revenues for cash sales amounting to Rs500,000 and Rs1 million would have allowed the FBR to generate Rs102,500 and Rs205,000.

This resulted in widespread panic in business communities, causing companies and firms to issue notifications to their customers to ensure that any transactions made were in compliance with the aforementioned amendment.

The actual amendment intends to disallow 50 percent of claimed expenditures on the sales of goods valued over Rs200,000. However, it merits a mention that this disallowance is reportedly applicable only on transactions utilizing cash and non-banking methods as a mode of payment per single invoice. 

This law is expected to increase the taxable income of businesses, which could allow for the FBR to witness a surge in revenues. However, the move will decrease profit margins for businesses that are compliant with taxation laws.

FBR Chairman Rashid Mahmood Langrial outlined that the aforementioned law could not be withdrawn by the federal government at this point in time. Reports indicate that he told the Senate Standing Committee on Finance that that the National Assembly Standing Committee on Finance had approved the law and that changes can only be made in Finance Bill 2026.

Aside from garnering disapproval from the wider business community, Senator Sherry Rehman reportedly commented on how the PPP is not in favor of the aforementioned law.

Reports cite a senior official from the FBR who stated that the revenue watchdog has not deemed cash sales transactions exceeding Rs200,000 as “high risk”. Instead, the measure aims to increase the usage of banking channels to make transactions. 

As an example of how the new disallowance framework will function, consider a business that sold goods exceeding Rs200,000 in value to a customer that cost it only Rs50,000 to produce. Under the older tax regime, the entire Rs50,000 would have been excluded from taxable income. However, the new amendment results in only Rs25,000 being disallowed, causing taxable income to rise by Rs25,000.

Senior officials, including tax officers, at the Federal Board of Revenue (FBR) are now being issued brand-new Honda City vehicles. According to reports, dozens of cars have been delivered to the FBR headquarters in Karachi.

Earlier this year, in January, the FBR placed an order for 1,010 Honda City cars worth approximately Rs6 billion. According to reports, an initial payment was made to secure the delivery of 500 vehicles, with the board making an advance payment of Rs3 billion to Honda. 

However, it merits a mention that the move was initially met with fierce resistance by lawmakers in Islamabad. When news of the purchase order came to light, a parliamentary panel asked Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb to immediately halt the purchase of cars for the Federal Board of Revenue (FBR). 

The panel also called the purchase “scandalous” because the FBR was to be rewarded despite failing to meet its revenue targets. Critics outlined how the purchase agreement seemed suspicious, accusing the FBR of not giving a fair chance to other car manufacturers. 

According to Senate Member Faisal Vawda, the purchase order and approval from the Economic Coordination Committee (ECC) were issued on the same day. He claimed that this indicates the possibility that no other car assembler had even been considered, let alone been allowed to bid for the contract.

However, the FBR recently sent a letter to a parliamentary committee to explain the importance of these cars and how they will not be misused. As per reports, the letter clarified that only grade 17 and 18 officers in field offices will be able to use the cars for official purposes. Officers above grade 18 will be locked out of the scheme and will be unable to utilise the car for official purposes.

Moreover, the FBR clarified that cars will be assigned to offices and not specific individuals. Cars will also have official FBR stickers to restrict instances of misuse.

The FBR has claimed that it requires the cars to be able to boost tax collection levels. While analysts agree that the cars could help increase the efficiency of FBR officials, thereby increasing revenues, reports suggest that the purchase still draws opposition from the general public.

In a bid to expand compliance with taxation laws, the Federal Board of Revenue’s (FBR) Chairman, Rashid Mahmood Langrial, vowed to launch a crackdown against non-compliant businesses. Appearing on Television, he outlined the FBR’s intent to look into existing loopholes the tobacco sector exploits, digitise the monitoring process, and commented on the new passive income tax framework.

Outlining the board’s achievements with the sugar industry, the chairman assured that the tobacco sector will soon fall into the tax net as well. According to details from reports, Islamabad’s crackdown against businesses in the sugar industry allowed for a staggering 39 percent boost in tax collection levels. It merits a mention that this increase in collections came about without a hike in tax rates.

The chairman highlighted that, similar to the sugar industry, other sectors would be at the receiving end of similar crackdowns to ensure compliance. Illicit tobacco and cigarette companies operating in the domestic market have resulted in the federal government losing out on Rs300 to Rs500 billion in unrealised revenues.

He outlined the federal government’s strategy of bringing businesses into the fold of compliance as opposed to raising tax rates, as higher taxes can cause the informal sector to grow stronger. The chairman revealed that the FBR has witnessed a large spike in compliance rates with tax laws in the sugar industry.

Moreover, he underlined accountability measures that had been put in place to reduce instances of corruption and tax evasion. The Intelligence Bureau (IB) has played an instrumental role in rooting out corrupt officials from the FBR’s staff, allowing for the tax watchdog to operate with greater efficiency.

Aside from the sugar and tobacco sectors, the chairman mentioned that producers in the poultry industry were engaging in large-scale tax evasion schemes. These schemes came to light after the FBR probed into the matter, and the schemes are reportedly cheating the national exchequer out of “millions of rupees”.

In other developments, the chairman also commented on the imposition of a new 15 percent tax on passive income, explaining how it could boost investment levels in the economy. Taxing funds parked in banks to yield interest revenues could cause individuals to pull their money out and invest in businesses or the capital market.

This could result in a greater level of business activity, which the FBR is expected to keep track of to bring in greater revenues.

Businesspersons in Pakistan have requested the government to shield them from the Federal Board of Revenue’s (FBR) excesses. According to reports, the tax watchdog has allegedly perpetrated instances of harassment against investors, sparking concerns.

Business leaders and investors have outlined how the FBR has “become a symbol of fear”. Moreover, investors have called for the federal government to streamline the board’s policies, claiming that its policies are riddled with inconsistencies. 

According to reports, businesspeople have requested that Islamabad enact laws pertaining to bankruptcy. Analysts believe that reforming bankruptcy laws can boost domestic investment levels, leading to economic growth.

While many developed countries have long-standing bankruptcy laws, Pakistan has reportedly not introduced any such laws. This has caused business owners to refrain from raising funds from investors because if a business fails, the owner can face personal legal trouble.

A bankruptcy law would decriminalise honest business failure, letting genuine entrepreneurs restart without lifelong penalties. Knowing that bankruptcy laws will protect entrepreneurs from personal financial ruin in the event of a business failure could encourage greater business activity in the economy.

The federal government has responded to calls for bankruptcy laws, as Special Assistant to the Prime Minister on Industries and Production Haroon Akhtar Khan declared that a subcommittee has been created to work on drafting bankruptcy laws.

According to reports, Haroon Akhtar chaired the meeting of the PM committee regarding bankruptcy legislation. Authorities present at the meeting highlighted the need to create a business-friendly atmosphere in Pakistan. 

Reports indicate that creating a business-friendly environment aligns with Prime Minister Shehbaz Sharif’s vision.  However, the committee reportedly conceded that the country suffers from the lack of a bankruptcy framework and that steps needed to be taken to create legislation to protect businesses. 

Haroon Akhtar announced the government’s aim to regain the confidence of foreign investors. The formulation of bankruptcy laws would send a positive signal to foreign investors regarding the country’s willingness to align Pakistan’s investment climate with the world’s.

Data from recent reports have suggested that foreign direct investment (FDI) levels fell by a staggering 91 percent on a year-on-year basis in March 2025. With FDI inflows under jeopardy, many believe that cash-strapped Pakistan must alleviate fears that foreign investors have by introducing business-friendly laws and frameworks.