KARACHI: A major controversy is brewing over the alleged systemic misuse of lucrative tax concessions granted to industrial units in the former Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA), with the practice now reportedly taking root in the port city of Karachi, raising alarms among established Pakistani businesses and revenue authorities.
The crisis stems from an interim order by the Peshawar High Court in an ongoing writ petition, which has temporarily suspended key conditions of Customs General Order (CGO) No. 1 of 2021. The order directs customs authorities to clear consignments for FATA/PATA-based importers without enforcing mandatory safeguards.
The FATA/PATA concessionary policy, governed by CGO No. 1 of 2021, was designed to spur industrial growth and economic activity in these underdeveloped regions. It allows eligible units to import goods like fabrics, blankets, black tea, green tea, and food items with significant tax exemptions.
It may be mentioned here that Facilitation Mechanism on the instructions of Yaqoob Mako, Additional Director Tauseef Gorchani and his team had stopped such consignments at import stage about a year ago, however the consignments were released on the order of Peshawar High Court.
Chief Collector Enforcement Basit Abbasi has assigned Collector Moin Uddin Wani and Additional Collector Raza Naqvi to monitor these consignment as to where these goods are disposed of. A large quantity of edible oil, cloth, plastic polymer and other such goods are being cleared. These consignments are only being cleared at Second Review, and officials suspect that this practice can’t continue without the vested interests of officers.
An official said the Peshawar High Court was mis-briefed and this judgment has flaws. Because, the order was for FATA/PATA and under this CGO these consignments can only be cleared in FATA/PATA, which means the concession was only for FATA/PATA.
Such consignments are largely being cleared in Karachi causing loss to national exchequer, moreover, these goods can only be transported through bonded carrier, but no such practice is being observed.
To prevent abuse, the CGO imposed strict conditions, including:
1. Filing of Tax Documents at Karachi Ports: Initial paperwork must be filed in Karachi.
2. Transport via Bonded Carriers: Goods must be transported in sealed, bonded vehicles to prevent mid-route diversion.
3. Cargo Tracking: Mandatory GPS monitoring under the “Tracking and Monitoring of Cargo Rules, 2012” from Karachi to the final factory premises in FATA/PATA.
4. Clearance at Designated Dry Ports: Final customs clearance and release of goods must occur only at the nearest dry ports in Azakhel or Peshawar.
The Peshawar High Court’s recent directive, which waives these conditions pending its final decision, has sparked grave concern among mainstream importers and manufacturers across Pakistan.
They fear that without these safeguards, FATA/PATA-based entities will clear their tax-exempt goods directly at the port in Karachi, store them in local warehouses, and illegally flood the Pakistani market. This practice would grant them an unfair price advantage, as their goods would be free of the duties and taxes that local competitors must pay.
“This misuse has a dual negative impact,” explained a representative from a trade body. “It defrauds the national exchequer of billions in revenue, and it makes honest Pakistani businesses unable to compete, threatening their very survival.”
These fears are not unfounded. Industry representatives have pointed to a recently detected “mega scam” involving black tea as a stark precedent. The Directorate General of Intelligence and Investigation-Customs in Karachi uncovered a case where importers based in Azad Jammu and Kashmir (AJK)—another region with similar concessions—illegally disposed of tax-exempt black tea in the local Pakistani market instead of transporting it to AJK.
The case involved an estimated tax evasion of Rs. 3 billion. The adjudication authority has since ordered the outright confiscation of the smuggled tea and imposed heavy penalties on the importers and their clearing agents.
With the writ petition still pending, Pakistani businesses are urgently calling on the government, specifically the Federal Board of Revenue (FBR), to intervene.
They have demanded that the FBR immediately inform the Peshawar High Court about the history of concession misuse and the detection of major cases like the black tea scam. The goal is to present a comprehensive picture of the potential revenue loss and market distortion before the court makes its final ruling.
The issue has gained significant traction, with the Karachi Chamber of Commerce and Industry (KCCI) also reportedly taking up the matter with the government on behalf of the affected local manufacturers.
The situation presents a critical challenge for the FBR: balancing the need for judicial process with its mandate to protect national revenue and ensure a level playing field for all businesses. The outcome of this dispute will have significant implications for the integrity of special economic zones and concessionary policies in Pakistan.