Sost Traders’ Sit-In; Policy Actions and A Way forward

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Scrolling through the social media coverage and speeches during the last few days by protesting traders and opposition political leaders in favor of the Dharna, and also recently by a few government ministers and advisors against it, it looks like it is not a straightforward political demand for constitutional rights or representation in the constitution of Pakistan. The slogan of ‘No Taxation without Representation’ is vital, but it seems vested interests are also at play for own benefits.

In the distant past, I had been writing about border trade, starting as far back as the 1990s. Since my first visit through the border in 1994 and later deliberating the conception and proposals of the community-owned Silk Route Dry Port Trust Sost in the late 90s and early 2000s with the founding General Manager and other Trustees, and also conducting a background study on the Dry Port in 2003, and currently as one of the Trustees, I can recall the fears, opportunities and the kind of stakeholders and vested interests involved in cross-border trade and economy, and how it may benefit GB, in particular Gojal and Hunza.

At face value, the protests in Sost, a small border town near the Chinese border in sub-division Gojal in Hunza district, by a group of traders against the imposition of sales and income tax and against the controversy created by the NLC-administered TIR is strangling cross-border trade, devastating local livelihoods, and brewing public unrest.

Taking notice of the situation, on July 18, 2025, the Governor of Gilgit Baltistan Syed Mehdi Shah appealed to the President for immediate action to halt illegal taxation and release over 250 stranded consignments. But there is no news from the Presidency as yet. However, on 3^rd August 2025, the Prime Minister had constituted a 14-member committee at the federal level to report back within two weeks with terms of reference to review the “legal, operational, security and policy bottlenecks” affecting the Sost Dry Port and engage with stakeholders and recommend a sustainable mechanism including joint examination with the Chinese side. While the treasury bench and GB Government Ministers and some advisors have lined up against it, calling it a drama, opposition leaders have voiced their support and made token speeches and participated in the dharna sit-in.

The GB Tax Crisis at a Glance

Since 2021, the Federal Board of Revenue (FBR) has been imposing sales and income taxes at Sost Port even though:

G-B is tax-exempt under Section 40D(5) of the Sales Tax Act, 1990
The Supreme Court of Pakistan (1999) and the G-B Chief Court (2024) declared such taxation illegal, as GB is not a constitutional part of Pakistan and does not have representation in the federal institutions.
The stated official position of Pakistan in the UN and other international forums and Pak-China border agreement of 1962 also acknowledges the provisional status and links to resolution of the Kashmir dispute.
Under the CPEC investment discourse, China always emphasizes Pakistan to provide sovereign guarantees and protection for Chinese investments in GB, as they are cautious and reluctant to invest due to its current disputed status.

However, despite these facts and stated position of the state of Pakistan, the FBR insists and continues to impose taxes on the businesses and people of Gilgit Baltistan. While explicit data is not available, 2023 Customs data reported Rs. 5.5 billion record revenue collection by the Dry Port which shows it is a significant point for trade, especially in the context of China-Pakistan Economic Corridor (CPEC). Other estimates report up to Rs. 9 billion, if leakages are curtailed including:

Malpractices and release of containers and consignments through illegal means by different groups of businesspeople and their agents’ hand-in-glove with customs officials, with heavy losses to the treasury. However, this malpractice created an anomaly as some businesses and traders’ groups were paying the taxes to clear their consignments, others were protesting but still trying to do under carpet handling to clear their containers. However, when failing to reach a deal, they also resorted to threats, blackmailing and public protests, using the banner of the Tax-exempt status and the slogan of “No taxation without representation.”
The protests and stoppage caused heavy demurrage charges to traders and consignments stuck for months, and massive financial losses for traders.
Accusations of Transport Internationaux Routiers TIR system misuse by National Logistics Cell (NLC), reportedly diverting goods in sealed containers sold or disposed of within local market, a violation of customs rules, akin to smuggling and undercutting local trade.

Sost Border Trade -Where Cross-Border Trade Meets Local Survival

Sost Dry Port serves as the main artery for Pakistan’s trade with China via the Khunjerab Pass. It’s also the hub of a vibrant cross-border economy-from multi-million-rupee shipments to the everyday hustle of petty traders.
A unique and long-standing system operates here. Young locals, often unemployed, act as carriers for small-scale goods, leveraging border pass allowances that permit limited baggage for personal use. These items, often passed through Chinese customs legally, are handed over to middlemen or actual owners in exchange for a small per-kilogram or per-item fixed amount or commission. The process is repeated multiple times, since border pass holders are allowed numerous entries per year under bilateral arrangements.
While this “backpack trade” may seem minor, it represents the only source of livelihood for many in these high-mountain towns, many of them use this apprenticeship to start their own business, and many of the current formal importers and exporters were once bag carriers on this route. But today, both petty traders and formal importers face strangulation-not from market forces, but from the Federal Board of Revenue (FBR) and customs authorities.

This type of petty border trade in marginalized areas have many benefits like it provides livelihood and employment to youth, it boosts local economy and consumption circulating money locally, low-cost import/export green channel and encourages people to people contact and informal trade, culture and tourism diplomacy between bordering regions and countries using legal movement utilizing border pass management.

Nevertheless, there are risks and challenges namely, evasion of taxes and duties by formal importers/exporters exploiting backpack carriers, weak documentation of formalization of economy, exploitation of carriers used for risky and illegal cargo unknowingly or underpaid for the work and security and smuggling challenges like potential channel for narcotics, counterfeit goods or sensitive items etc.

However, these risks and challenges could be thoughtfully mitigated based on the current measures and lessons learned through engaging district and sub-division level business associations and chambers of commerce and traders for registration of carriers, digitizing volume allowance limits and items lists for personal baggage allowance online, security vigilance and proper sanitization at border crossing points using AI and reducing human to human contact in personal and baggage search to enhance the dignity and honor of travelers and in the interest of promoting mutual trust.

Formal Border Trade Regime at Sost

As far as the formal traders/agents from GB are concerned, although fewer compared to such businesses from other provinces of Pakistan doing imports through this border, they are actually leading these protests as their containers and consignments are stuck and they are facing losses, both with imposition of taxes and demurrage costs.

It needs to be noted that formal import and export operations through Sost Dry Port in Gilgit-Baltistan (G-B) follow a regulated process involving registration, licensing, documentation, customs clearance, payment of duties, and logistics coordination. Sost Dry Port, strategically located near the Khunjerab Pass on the China-Pakistan border, is managed by the National Logistics Corporation (NLC) through a lease agreement with Silk Route Dry Port Trust, a community owned Trust of Hunza, and offers inland customs services. This reduces the need to use seaports and facilitates trade, especially Chinese exports to Pakistan.

However, legal concerns arise when G-B-based firms act as agents for businesses in mainland Pakistan to exploit G-B’s tax-exempt status. While G-B is constitutionally outside Pakistan’s tax net under Section 40 D(5) of the Sales Tax Act 1990, exemptions are meant for goods consumed or used within G-B. If firms import goods duty-free through Sost for use or resale in mainland Pakistan, this constitutes tax evasion and can be seen as a form of smuggling. Customs and FBR authorities have flagged such misuse in the past cases, and unless the trade benefits remain in G-B and are transparently documented, such practices fall outside legal and ethical boundaries. A fair regulatory environment must distinguish between genuine local businesses with goods intended to GB consumers, and those disguised conduits for tax avoidance.

TIR- NLC-Related Risks:

There have been specific precedents where the National Logistics Corporation (NLC), which manages Sost Dry Port, has been implicated in alleged misuse of the TIR (Transports Internationaux Routiers) system, facilitating questionable trade for mainland-linked firms. Such practices raise serious concerns around institutional oversight and customs compliance. Even if documentation appears to follow procedure, customs and FBR authorities can prosecute these arrangements as fraud or tax evasion, especially when the importer of record in G-B is merely a front for tax-exempt goods entering the wider Pakistani market.

Past incidents illustrate how institutional loopholes can facilitate unlawful trade practices, raising concerns about transparency and legal compliance.

To Sum Up

In this light the recent sit-in at Sost Dry Port, led by the groups of traders and supported by the opposition parties and figures, has sparked intense debate across political and social circles. What appears on the surface to be a demand for the constitutional rights of Gilgit-Baltistan (GB) residents, particularly “no taxation without representation”, has upon closer inspection, exposed a complex interplay of legal grievances, economic exploitation, and political posturing.

Tax Avoidance by formal GB traders and NLC

This concern is heightened by past incidents involving formal importers/exporters from GB acting as front for mainland firms in Pakistan, more recently, the traders have blamed the National Logistics Corporation (NLC), which manages Sost Dry Port, on behalf of the Silk Route Dry Port Trust, of facilitating dubious trade practices under the TIR (Transports Internationaux Routiers) regime, allowing sealed containers to be diverted illegally to local markets. Such abuse undermines both customs compliance and the legitimacy of GB’s tax-exempt status. That means both the disguised formal firms from GB and the NLC are doing the same illegal things to avoid tax and doing disservice to the people of Gilgit Baltistan.

Local Livelihoods Under Pressure

Beyond trade volumes and court rulings and capture and tug of war between NLC and the local fronts for big mainland businesses and FBR, this crisis affects the day-to-day survival of the real genuine local people, mainly the local businesses in Sost and the young bag carriers, who make a living out of it.

For decades, youth and traders from Sost, Gojal, Nagar and Gilgit have engaged in “backpack trade”, carrying small goods across the border under personal baggage allowances. This informal cross-border trade has offered employment to youth, boosted local consumption and small businesses, and facilitated people-to-people contacts and cultural diplomacy across the China-Pakistan border.

The FBR can also legalize and regulate small-scale trade corridors, issue cross-border trader cards via district trade bodies, support cooperatives of backpack traders at district levels, and develop smart customs apps for green channel clearance at both the Sost and Tashkurgan ports.

The Way Forward: From Protest to Policy Action

To avoid economic collapse of CPEC and further alienation of people of Gilgit Baltistan, urgent steps are needed:

Legalize and regulate small-scale trade corridor: FBR need to allow cross-border trader cards via district level trade associations, limit baggage allowance for local people, support cooperatives of backpack traders at district levels, and develop smart customs apps for online green channel clearance (tax and duty free) at both the Sost and negotiate with Chinese officials to do the same at Tashkurgan Khunjerab port under CPEC cross-border people to people contact.
Immediate Amnesty for GB Traders: Assess formal GB importers/exporters, release all their blocked containers at Sost and waive demurrage fees and penalties, with exception of those fronting mainland Pakistan businesses, who must pay legal taxes, duties and charges.
Legal Clarity and Declare GB as SEZ and tax-free Zone: Suspend FBR tax enforcement in GB jurisdiction/territory, declare whole GB as a Special Economic Zone (SEZ), and provide tax holiday for all investors and sovereign guarantee, until the constitutional clarity is established through political resolution to Kashmir dispute.
Fair Revenue Sharing: Allocate 50% of Khunjerab trade revenue to GB (within 10% dedicated to district Hunza and 5% to Sost Border town development).
Under CPEC Develop an Integrated Cross-border Program: To bring sub-division Gojal and Hunza district at par with Tashkurgan Tajik Autonomous County across the border and promote skills, cultural, educational, sports, conservation and climate change efforts and trade and economic development working jointly with Chinese to institute joint cross-border program with Sub-division Gojal.
Third Party Audit: Third party audit of all formal firms from GB and the NLC TIR operations at Sost to ensure transparency and move towards eTIR in future.
Political Resolution: Grant full provincial status to GB or provide interim fiscal autonomy with local legislative authority.

Justice Must Precede profitability and delusional stability

The Sost sit-in may involve some opportunism by vested groups, but its core demands reflect deep-seated grievances. Gilgit-Baltistan is not a colony, it guards borders, fuels tourism, protects crucial ecosystems, and facilitates major overland trade with China.

GB contributes significantly to Pakistan’s economy, through tourism, mining, trade, and environmental stewardship, yet receives less than 25% of the revenue generated. Ongoing tax enforcement, trade blockages, and neglect of legal rights have triggered protests, job losses, and growing disillusionment. To ensure sustainable development and political stability, the federal government must reform revenue-sharing mechanisms, and recognize GB’s rights, either through full provincial status or interim autonomy with sovereign guarantees for international investors through the chosen representatives of the people of Gilgit Baltistan.

Ignoring GB’s legal rights, economic contributions, and institutional injustices will not only weaken national unity but also jeopardize CPEC itself. Real progress requires transparent reforms, inclusive policies, and respect for the people whose land underpins the entire corridor.

Justice and constitutional rights for GB is not charity- it’s a prerequisite for a just and prosperous Pakistan and the long-term relationship between Pakistan and China.