Plugging tax leaks
That more than Rs2.25 trillion have been lost to tax evasion through 'fake' and 'flying' invoices in just two years is a staggering admission — and one that lays bare the scale of institutional failure plaguing Pakistan's revenue machinery. The figure, disclosed by the Federal Board of Revenue, represents nearly a third of the total taxes collected on the customs side, showing just how deeply entrenched the problem has become.
Such large-scale evasion at a time when the country is navigating a fragile economic recovery is not only unsustainable but damaging to the government's credibility. Successive administrations have repeatedly promised to broaden the tax base and improve documentation, yet loopholes that enable outright fraud continue to be exploited with impunity. The use of fake invoices to claim undue input tax credits or reduce tax liability has become a routine practice, facilitated in many cases by internal collusion.
FBR has claimed that it is the only federal institution to have taken action against its own officers involved in such malpractices. However, internal accountability alone will not suffice. While punitive measures may deter some, the persistence of such fraudulent practices points to a structural rot that requires far more than selective disciplinary action. Pakistan's low tax-to-GDP ratio is a well-documented constraint on fiscal policymaking. It limits the state's capacity to provide essential services and meet its debt obligations without resorting to regressive indirect taxation or repeated external borrowing.
To plug these revenue leaks, the government must move towards comprehensive digitisation of invoicing and supply chains along with stronger audit systems — all the while depoliticising the FBR's functioning.
No serious economic recovery can be achieved while the state remains incapable or unwilling to curb fraud within its own revenue apparatus. This haemorrhaging must end if the country wants sustainable recovery.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
14 hours ago
- Business Recorder
Digitisation: tread the path carefully
EDITORIAL: The incumbent government is focused on digitisation in areas of engagement with the general public — which began with the use of ATM cards by the beneficiaries of the Benazir Income Support Programme (BISP), and more recently by a proactive drive towards digitisation by the Federal Board of Revenue (FBR), and yet to be implemented recent decision by the cabinet to print QR codes on all utility bills (electricity, gas, and telephone). The objective of such an exercise is salutary: to ensure all payments to BISP beneficiaries are effectively disbursed and all dues to the government are effectively collected. Reports suggest that many BISP beneficiaries, who are not literate and unable to withdraw the cash themselves, are forced to rely on others to withdraw their quarterly payments. Many who assist beneficiaries charge a flat fee for the withdrawal, while there are some who are unscrupulous and defraud a beneficiary of a sizeable portion of the money. And while some do register a complaint in the FIA yet the amount involved is so small from the FIA's perspective that investigation, if any, is perfunctory. State Bank and FBR have jointly introduced online collection of taxes and duties which, as per the Bank's website, is 'aimed at improving payments system especially in the context of revenue collection besides facilitating taxpayers and minimising incidence of leakages' as 'empirical studies show a strong correlation between electronic tax collection and revenue growth.' This again presupposes that a small or even a medium-sized business would have the necessary manpower — 'computer literacy' — to pay online without incurring any extra cost — a supposition that may not be accurate and may actually push many a prospective taxpayer to opt to operate purely on cash — a trend that is fairly widespread in this country. However, the SBP does note that 'digital risks emanating from the system need to be addressed carefully. Cybersecurity and privacy issues should be prudently tackled for developing taxpayers' trust and making digitisation more progressive.' With respect to QR codes, there is a legitimate concern that QR codes may actually allow the fraudsters to pay off part or whole of someone else's utility bill. In the UK, QR codes are increasingly found in electricity bills that provide tariff details, consumption and other relevant information that may potentially facilitate payment. However, what is relevant to note is that QR codes in use in the UK have features like advanced encryption and string customer authentication that assists in protecting financial information. While the recent thrust by the government towards a cashless economy is supported as its objective is to streamline payment/dues and to ensure fewer delinquents, yet Pakistan has not achieved any degree of cyber security that is critical before this objective can be met. One would hope that the government focuses attention on education; so far the provincial outlays on education have been small and more than offset by budgeting large amounts on physical infrastructure that, disturbingly, is increasingly requiring massive annual maintenance due to the floods as Pakistan remains one of the most climate-stressed countries in the world. To conclude, a holistic approach would entail starting with higher education outlays, at least 6 percent of total expenditure, which would provide the public with the know-how to use the digital platforms effectively and guard themselves against the ever-present likelihood of fraud in this country. Copyright Business Recorder, 2025
Business Recorder
14 hours ago
- Business Recorder
‘Disputed scrap' FBR directs Customs to enforce new law
ISLAMABAD: The Federal Board of Revenue (FBR) has directed Collector of Customs to strictly implement the new law that scrapping and mutilation shall not be allowed for quantity exceeding 10 percent of the imported goods. In this regard, the FBR has issued instructions to the field formations for strict compliance at airports and ports. To limit the facility of allowing mutilation/scrapping of disputed scrap only to bona fide disputed goods, a provision has been added to Section 27A of the Customs Act that scrapping and mutilation shall not be allowed for quantity exceeding ten percent of the imported goods. The chief collector of customs, Airports, Islamabad and all collectors of Customs Airports are directed to ensure strict implementation, the FBR added. According to the Finance Act 2025, 'Provided further that scrapping and mutilation shall not be allowed for quantity exceeding ten percent of the imported goods', it added. Official sources told Business Recorder that the law has been introduced to check massive misuse of the facility in the past by the importers. Copyright Business Recorder, 2025
Business Recorder
15 hours ago
- Business Recorder
Old car importers: Anti-Benami zone of FBR initiates big crackdown
KARACHI: The anti-Benami zone of Federal Board of Revenue (FBR) has kicked off massive crackdown against the billions of rupees Benami transactions carried out by old/used car importers during past seven years. According to the official document, which was exclusively available to the Daily Business Recorder, the anti-Benami zone has launched a comprehensive crackdown targeting the systematic abuse of the Vehicle Baggage and Gifts Scheme (VB&GS), which was designed for legitimate personal imports but has been extensively exploited by commercial importers through clearing agents with the alleged support of customs officials. The enforcement action is focusing on vehicle clearances conducted between February 2018 and May 2025, giving clearing agents just seven days to provide detailed explanations for thousands of vehicle imports processed under the personal baggage scheme. The notices have specifically accused clearing agents of concealing the true beneficial ownership of imported vehicles while systematically evading billions in taxes and duties during the seven-year period under investigation. The anti-Benami zone has demanded comprehensive documentation from clearing agents, including complete import records, customs declarations, detailed particulars of end users and true owners with names, national identity card numbers and addresses, information on all parties involved in transactions, copies of agreements and contracts, bank statements covering the entire seven-year period, and detailed explanations of how commercial vehicles qualified for the personal baggage and gifts scheme and warned to initiate criminal proceedings under multiple sections of the Benami Transactions (Prohibition) Act 2017 in case of non-compliance, showing the determination to hold all responsible accountable for this systematic exploitation of these schemes. Arshad Khurshid, Chairman of the All Pakistan Customs Clearing Agents Association, confirmed that the anti-Benami zone has issued notices to the association members involved in vehicles clearance. He said that the association has instructed its members to provide maximum cooperation with the investigation and furnish all requested clearance records to the authorities. Meanwhile sources informed that the crackdown was initiated following direct instructions from Prime Minister Shahbaz Sharif, who ordered comprehensive action to stop the exploitation of overseas Pakistani passports for misusing personal baggage, transfer of residence, and gift schemes in the import of old/ used vehicles. The Prime Minister's directive is now reflecting zero-tolerance approach against the systematic abuse of schemes, which although intended to facilitate overseas Pakistanis for their legitimate personal imports, being misused for years. The government had previously attempted to address the issue by introducing additional legal requirements in the Import Policy Order, 2022, implemented in 2019 for old/used vehicle imports under these schemes. These regulations mandated that all duties and taxes for vehicles imported under transfer of residence, personal baggage, or gift schemes must be paid using foreign exchange arranged by Pakistani nationals themselves or local recipients, supported by bank encashment certificates showing conversion of foreign remittance to local currency. It also restricted that remittances for duty and tax payments must originate from the account of the Pakistani national sending the vehicle from abroad, and must be received either in the sender's account or, if that account is non-existent or inoperative, in a family member's account. To ensure compliance, the government made submission of Proceed Realization Certificates mandatory, including details of remitting banks, remitter names, beneficiary information, account numbers, certificate amounts, and beneficiary banks verified by head offices. However, customs authorities have found a new pattern of fraud where unscrupulous elements involved in vehicle clearance have been submitting fake Proceed Realization Certificates in collusion with various private banks. These fraudulent certificates were being verified by the banks themselves, enabling the illegal clearance of vehicles, sources said, suggesting that the ongoing crackdown may not have lasting impact without comprehensive policy reform. They said that the government collected over Rs. 100 billion through old/used vehicle imports but didn't promulgate any policy for commercial imports, urging the government to introduce a commercial import policy to completely eliminate such illicit activities. Copyright Business Recorder, 2025
