An internal audit reveals significant revenue shortfalls in Pakistan’s innovative yet flawed and faceless customs clearance mechanism, raising questions about its effectiveness in curbing corruption.
Pakistan’s Federal Board of Revenue (FBR) has uncovered a Rs100 billion customs loss through its faceless customs system over three months, stemming from widespread discrepancies in goods declarations, tax evasion, and fraudulent clearances, primarily in Karachi, due to inadequate oversight following the system’s launch on December 16, 2024.
Why it Matters
The revelation of substantial financial leakages in Pakistan’s faceless customs system underscores broader challenges in revenue collection for a developing South Asian economy grappling with fiscal deficits and IMF-mandated reforms. This Rs100 billion customs loss in Pakistan not only hampers public funding for essential services but also highlights vulnerabilities in digital trade facilitation that could influence regional customs practices amid rising global trade volumes.
Overview of the Pakistan Faceless Customs System
Launched by the Prime Minister in Karachi on December 16, 2024, the Pakistan faceless customs system, officially known as the Faceless Customs Assessment (FCA), aimed to streamline import and export processes by minimising human intervention and combating corruption. Implemented as part of the FBR’s Transformation Plan, it relies on automated assessments and risk-based channels—green for low-risk, yellow for moderate, and red for high-risk—to expedite clearances. However, an internal audit by Pakistan Customs, covering the period from December 16, 2024, to March 15, 2025, has exposed critical flaws leading to the Rs100 billion customs loss in Pakistan.
The audit scrutinised 13,140 goods declarations (GDs) and identified irregularities in 2,530 cases, indicating systemic risks in revenue and compliance. According to the 161-page audit report, these discrepancies arose from duty and tax evasion, underinvoicing, overinvoicing, and misuse of clearance channels. The scrutiny of 13,140 goods declarations (GDs) led to detection of several discrepancies in 2,530 GDs that raise serious concerns about quality of assessments, indicating revenue and compliance risks, the report stated.
Key findings include Rs5 billion in duty and tax evasion across 1,524 GDs, a Rs2.43 billion loss in statutory fines, and the clearance of restricted goods valued at Rs10.54 billion in 1,006 GDs. Potential revenue from fines for major evasions (over Rs1 million per GD) amounted to Rs30.364 billion, but only a fraction—Rs3.480 billion—was imposed or collected in 308 cases. The report highlighted a surge in green channel clearances, reaching 60 per cent for imports and 85 per cent for exports, which reduced pre-clearance controls and enabled exploitation.
Rs100 Billion Customs Loss in Pakistan: Key Incidents
The Rs100 billion customs loss in Pakistan was exacerbated by specific scams, notably a solar panel money laundering operation. Between December 2024 and February 2025, 54 containers of solar panels were fraudulently cleared using fake goods declarations and unauthorised tax numbers, bypassing regulatory scrutiny. This incident alone contributed to significant undervaluation and evasion.
Another prominent example involved luxury vehicle imports, where underinvoicing facilitated trade-based money laundering. A 2023 Toyota Land Cruiser, valued at approximately Rs10 million, was reportedly cleared for just Rs17,635, evading duties and taxes worth Rs47.2 million. The audit report noted similar patterns in 1,335 vehicle import cases, where declared values totalled Rs670 million against assessed values of Rs7.254 billion, resulting in an initial duty payment of Rs1.293 billion versus a legitimate liability of Rs18.78 billion. Importers often failed to provide proof of foreign exchange remittances, pointing to the use of illegal Hawala and Hundi networks.
In response to media reports on such cases, the FBR issued a statement on August 7, 2025, clarifying that the Toyota Land Cruiser was actually assessed at Rs10.05 million, with Rs47.2 million recovered in duties and taxes. In fact all such vehicles have been assessed by Customs under FCA at higher assessed values without causing any loss of revenue, the FBR press release asserted. It further emphasised that internal audits are routine to identify and address gaps in the Pakistan faceless customs system, countering narratives from beneficiaries of the old manual regime.
Earlier audits, such as one reported in August 2025, estimated losses at Rs38 billion over a similar period, focusing on underinvoicing in luxury goods and banned items cleared worth Rs10.5 billion. These findings align with the broader Rs100 billion customs loss in Pakistan, suggesting escalating issues despite corrective measures.
Challenges and Systemic Lapses in Implementation
The Pakistan faceless customs system shifted to transactional audits due to resource constraints at the Directorate General of Pakistan Customs, limiting entity-based scrutiny.
The audit report warned:
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. Misclassification of Harmonised System (HS) codes, violations of Statutory Regulatory Orders (SROs), and fraudulent GD cancellations further compounded the Rs100 billion customs loss in Pakistan.
Human resource inefficiencies and the rapid rollout without adequate training contributed to these lapses. While the system reduced dwell times for compliant traders, it inadvertently enabled sophisticated frauds, including the solar panel scam involving overinvoicing to launder funds.
Cross-verification with FBR data and prior reports confirms the audit’s scope, though exact figures for the full Rs100 billion remain tied to the internal document.
Background
The Pakistan faceless customs system was introduced via Customs General Order (CGO) 6 of 2024 to align with international best practices for digital customs. Prior to its launch, manual assessments were plagued by corruption allegations. Implementation began in Karachi on December 15, 2024, with plans for nationwide expansion. However, reviews in May and June 2025 recommended halting further rollout due to increased cargo dwell times and revenue drops, as noted in committee reports.
The FBR has since foiled attempts to game the system, suspending licences of agents and arresting individuals involved in frauds, demonstrating ongoing efforts to bolster the Pakistan faceless customs system.
What’s Next for the Pakistan Faceless Customs System
As the FBR conducts further reviews, enhancements to back-end oversight and AI-driven risk profiling are anticipated to mitigate future losses. Stakeholders expect coordinated action with the State Bank of Pakistan to curb money laundering, ensuring the Pakistan faceless customs system evolves into a robust tool for revenue protection amid Pakistan’s economic recovery.
Published in SouthAsianDesk, September 15th, 2025
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