FBR tightens noose around potential tax dodgers

ISLAMABAD: The Federal Board of Revenue (FBR) has launched a crackdown against potential tax dodgers involved in multi-billion rupees tax frauds in different parts of the country.

The FBR’s Regional Directorates of Intelligence & Investigation of Inland Revenues arrested five accused across the country on Monday, including one of the leading alleged fraudsters engaged in creating chains of dummy businesses, and four members of top management of end users/ beneficiaries Chief Financial Officers (CFOs) responsible for the tax fraud involving billions of sales tax loss to the national exchequer.

While taking action in a registered FIR involving billions of sales tax fraud, the Directorate of Intelligence & Investigation-Inland Revenue, Hyderabad, arrested the CFO and purchase officer of a leading Lahore-based battery manufacturer on charges of abetment/ connivance in sales tax fraud by claiming fake input tax.

In the intelligence-based operation, the Hyderabad team was assisted by the Lahore directorate. The revenue loss caused by the arrested accused alone is more than a billion to the national exchequer.

In a separate operation, the Faisalabad Directorate of Intelligence & Investigation-Inland Revenue arrested CFOs of Two sister concerns and a leading Faisalabad-based textile unit on the charges of abetment/ connivance in sales tax fraud by claiming fake input tax on coal. The revenue loss caused by the fraudulent practices involving a gang of fraudsters runs in hundreds of millions of rupees. An FIR had already been registered against the suppliers, beneficiaries, connivers, and others.

In another development, the pre-arrest bail of accused Taswar Shahid, nominated in FIRs, was rejected by the court on Oct 14. Subsequently, he was arrested from outside the courtroom. He is a leading member of the alleged gang operating fake and dummy units for generating fake sales tax input, which is used by the end users/ beneficiaries.

The arrests have been executed in the wake of the country-wide crackdown against the organised mafia and beneficiaries involved in sales tax fraud and in line with FBR’s enforcement measures to enhance tax compliance.

The FBR high-ups allegedly found that the input tax was misused for fake/ flying invoices and causing huge losses to the national exchequer. According to the details available with The News, the FBR got information about substantial sales tax fraud/ evasion committed by members of an association of persons (AOP) by way of non-payment of due taxes, adjusting inadmissible input tax on fake/ flying invoices and facilitating its buyers by providing a platform for unlawful input tax adjustment on the strength of fake/ bogus invoices.

These AOPs declared purchase of coal from such suppliers who have not declared purchase in the relevant HS Code. The scrutiny of records shows that the registered person received payments against supplies made to its buyers in a bank account and the same amount was transferred to the supplier. The whole management of bank transactions has been made to fraudulently fulfill the conditions of Section 73 of the Sales Tax Act I990.

The sales tax return of the AOPs shows that during tax periods from 2020 to 2023, the registered person declared sales of Rs.2,051.372 million involving output tax of Rs153.436 million, whereas the registered person has deposited Rs29.085 million during the said tax periods. The registered person declared huge purchases of Rs1,865.301 millions involving input tax of Rs128.410.

The scrutiny of the record indicates that prima facie, one involved entity made supplies to the registered persons by issuing fake output tax invoices (mere paper transactions) through the e-system of FBR to its buyers enabling them to adjust illegal input tax and caused heavy loss to the tune of Rs356.830 million to the national exchequer which constitutes tax fraud as defined in section 2(37) of the Sales Tax Act 1990, an offense punishable under section 33(13) of the Sales Tax Act 1990.