Audit says incorrect tax collection at customs clearance caused Rs534.5 million revenue loss
ISLAMABAD: The Auditor General of Pakistan (AGP) has identified a Rs534.52 million shortfall in income tax collection by the Federal Board of Revenue (FBR), citing failures to collect or correctly assess withholding tax on imported goods during customs clearance.
According to the latest AGP audit report, the irregularity was detected during audits of fiscal years 2022-23 and 2023-24 across 18 FBR field offices, involving 2,881 import cases.
The report said the revenue loss resulted from customs authorities either not collecting the required income tax or collecting it at rates lower than those prescribed under Pakistan’s tax laws.
Audit identifies incorrect tax collection
The AGP said Section 148 of the Income Tax Ordinance, 2001, requires income tax to be collected at the import stage at rates specified in Part II of the First Schedule for goods classified under Parts I to III of the Twelfth Schedule.
However, auditors found that FBR officials failed to apply the prescribed rates during customs clearance, resulting in an income tax shortfall of Rs534.52 million.
The audit observations were communicated to the tax authority between February and November 2024.
FBR cites recovery and legal action
In its response, the FBR informed auditors that recovery and legal proceedings had been initiated for most of the disputed amount.
According to the department:
Rs383.75 million is under recovery.
Rs23.68 million is under scrutiny.
Rs0.06 million is pending adjudication.
Rs1.64 million is pending before courts of law.
The FBR also disputed Rs125.37 million, arguing that withholding income tax had been correctly assessed and collected at the import stage.
The AGP, however, rejected the explanation, stating that the tax should have been collected strictly in accordance with the rates prescribed under the Twelfth Schedule of the Income Tax Ordinance, 2001.
DAC orders faster recoveries
The Departmental Accounts Committee (DAC) reviewed the audit observations during meetings held in August and December 2024 and January 2025.
The committee directed the FBR to accelerate recovery efforts, pursue cases pending before adjudicating authorities and courts, and submit comprehensive replies on matters still under scrutiny.
Despite these directives, the AGP noted that no significant progress had been reported by the time the audit report was finalised.
AGP recommends stronger WeBOC controls
The Auditor General recommended that the FBR strengthen controls within the Web-Based One Customs (WeBOC) System to ensure the automatic application of the correct income tax rates under the Twelfth Schedule at the import stage.
The audit also urged the tax authority to fix responsibility on officials found responsible for the lapse and improve internal monitoring to prevent similar revenue leakages in the future.
Analysts say strengthening automated customs systems and ensuring strict compliance with tax laws will be essential for improving revenue collection and reducing administrative errors at Pakistan’s ports.