ISLAMABAD: The chairman of a Pakistani senate panel on Monday accused tax officials of colluding with businesses suspected of exploiting tax concessions in the former Federally Administered Tribal Areas (FATA), as part of a probe into alleged tax evasion of around $1.4 billion.

A sub-committee of the Senate Standing Committee on Interior was reviewing an inquiry by the Federal Investigation Agency (FIA) into the suspected misuse of tax exemptions granted to industrial units and businesses in the former Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA). The subcommittee put the broader financial irregularities under investigation at Rs1.12 trillion ($4 billion), with estimated tax evasion reaching around Rs400 billion ($1.4 billion).

Pakistan allows tax concessions and exemptions to local businesses and industrial units in the underdeveloped FATA and PATA regions. These are tribal areas that were merged with the northwestern Khyber Pakhtunkhwa (KP) province by the federal government in 2018.

Investigators suspect companies in FATA and PATA imported tax-free raw materials into these zones to take advantage of tax concessions, before illegally routing the finished products to other parts of the country to undercut their competitors.

The sub-committee’s chairman, Senator Saifullah Abro, alleged that businesspersons based in Islamabad were setting up companies using names of local residents in KP to benefit from the tax breaks.

“FBR [Federal Board of Revenue] officers are hand in glove with this,” Abro said during the meeting.

His remarks came after the Inland Revenue Chief Commissioner Muhammad Taqi Qureshi refused to hand over tax exemption documents to the Senate panel, citing confidentiality rules and media leaks in the past.

Tax officials present at the hearing categorically rejected allegations of any collusion between the FBR and the beneficiary businesses.

Abro said businesspersons based in Islamabad, who were using the names of people from KP to open businesses, were operating in edible oil, steel, food, tea and textiles sectors.

FIA Deputy Director Muhammad Afzal Khan Niazi shared details of the probe. He said 512 companies operating in or benefiting from the tax exempted zones had been issued notices. The FIA official said 35 writ petitions had been filed in the PHC by 174 beneficiary companies seeking to halt the investigation or obtain relief against the FIA’s proceedings.

He described this failure of the companies to provide complete records as evidence of bad faith aimed at avoiding scrutiny. The claims have not yet been tested in court.

The next hearing of the high court is scheduled for November 12, with Niazi saying he would personally appear in the hearing to explain the agency’s jurisdiction and the basis for its investigation.

Abro asked the FIA to inspect the factories accused of falsely availing tax exemptions, and establish whether their actual production capacities matched the quantities of raw materials imported under the concessions.

He also asked investigators to examine similarities in the companies’ court petitions and trace common individuals allegedly linked to businesses across different sectors.

The probe comes as Pakistan faces strict international pressure to broaden its narrow tax base, curb exemptions and boost revenue collection to stabilize its fragile economy under a $7 billion IMF loan program.