Faceless Customs Assessment: Audit sparks concerns about under-invoicing

KARACHI: The import value of a 2023 Toyota Land Cruiser, typically worth millions, has been shockingly declared at just Rs 17,635 for customs clearance through the Faceless Customs Assessment (FCA) system, sparking concerns about massive under-invoicing in the luxury vehicle imports.

This was revealed in an audit report compiled by the Directorate General of Post Clearance Audit (PCA) on the FCA system for the period between December 2024 and March 2025.

The audit report has uncovered one of Pakistan’s largest trade-based money laundering schemes in luxury vehicle imports, involving systematic under-invoicing of imported luxury vehicles, with some cases showing gross undervaluation of nearly 100 percent.

Internal review describes FCA system as ‘a complete failure’

The PCA, South auditors have examined 1,335 Goods Declarations for luxury vehicle imports where the difference between declared and assessed duties exceeded Rs 1 million, clearly indicating high under-invoicing in the imports of high-value luxury vehicles.

The audit report revealed that across all 1,335 cases examined, importers collectively declared just Rs 670 million as the import value of the vehicles while the actual assessed values totalled Rs 7,254 million or Rs. 7.254 billion. The fraudulent declarations resulted in initial duty payments of only Rs 1.293 billion when the legitimate tax liability should have been Rs 18.78 billion.

Despite these massive discrepancies being identified during assessment, customs officials failed to demand proof that vehicle purchases were made through legitimate foreign exchange remittances as required by Pakistani import regulations. “In every single case reviewed, importers provided no documentation showing foreign currency payments, strongly indicating the use of illegal Hawala and Hundi networks originating from Pakistan,” the audit report said.

“These aren’t isolated incidents of clerical errors,” customs sources said. “We’re looking at an organised scheme where importers systematically used illegal money transfer channels to pay actual purchase prices abroad while declaring minimal amounts to Pakistani customs to avoid scrutiny.”

The audit revealed that an importer declared a 2023 Toyota Land Cruiser, which featured a 3,444cc engine and was imported from Japan, at a mere Rs 17,635.

However, when customs officers conducted their assessment, they determined the vehicle’s actual value to be Rs 10,049,868, with total leviable duties and taxes amounting to Rs 47,214,182, representing a staggering 99.8percent under-invoicing in vehicle imports.

The PCA auditors also identified a disturbing recurring pattern where importers systematically understated vehicle values to reduce initial duty payments, a practice that not only resulted in short-payment of taxes but also led to deliberate under-valuation of assets in Income Tax Returns.

The audit report highlighted that importers consistently failed to provide proof of payments substantiating that purchases of imported vehicles were made through legitimate remittances originating from foreign countries.

In the absence of such documentation, the report said that the use of illicit channels such as Hawala and Hundi networks, originating from Pakistan, cannot be ruled out.

Under customs rules, the vehicle import payments must be made through official remittances from foreign countries, making the lack of proper documentation particularly concerning.

The significant discrepancies between declared and assessed values, combined with the vast gaps between declared and assessed duties and taxes, have raised serious red flags about the widespread and systematic nature of this fraudulent practice.

The audit report termed these activities as a high-risk Trade-Based Money Laundering scheme, posing a serious threat to Pakistan’s financial system. These findings emerged at a critical time when Pakistan is actively working to strengthen its anti-money laundering frameworks and improve compliance with international financial standards set by organizations such as the Financial Action Task Force and the International Monetary Fund (IMF).

Meanwhile, sources said that the audit report has been forwarded to relevant authorities for comprehensive investigation and prosecution of the identified cases and added that the Federal Board of Revenue (FBR), along with other regulatory bodies including the State Bank of Pakistan and the Financial Monitoring Unit, are expected to take immediate coordinated action to address the systemic vulnerabilities in the luxury vehicle import assessment process and strengthen controls to prevent such future exploitation of the system in future.

Copyright Business Recorder, 2025