Bogus sales tax refunds: FTO directs FBR to initiate action against tax officials

ISLAMABAD: Federal Tax Ombudsman (FTO), in suo motu case, directed FBR to initiate disciplinary action against the tax officials involved in sanctioning of millions of rupees bogus sales tax refund during 2011-14.

According to FTO report, investigation conducted by Directorate General I&I-IR (FBR) revealed that in the case of M/s Crescent and Yasdan Traders International, a Registered Person (RP), Rs46.916 million sales tax was refunded.

Similarly, M/s AZ, had been issued sales tax refund amounting to Rs7.507 million. M/s Silicon International had been issued Rs5.458 million sales tax refund while M/s Amharic Traders had been refunded Rs4.120 million.

According to FTO investigation, Directorate General I&I-IR (FBR) had issued “Red Alerts” in such cases to the concerned field formations but neither any action was initiated against the fake claimants and their connivers in FBR and PRAL management nor was any action proposed against the related bank officers who opened the bank accounts through which refund cheques were drawn.

According to FTO report, failure of the FBR to sleep over such an important anti-tax evasion exercise carried out by the I&I-IR led to serious instances of maladministration on account of certain acts of omission and commission, reflecting improper motives, jeopardizing good governance and transparency in tax administration.

FTO findings reveal that fake persons were registered with the connivance of the FBR staff, refunds were claimed on the basis of fake and flying vouchers, which led to massive loss to already cash starved exchequer. Although the Director I&I-IR Karachi issued Red Alerts, however, FBR officials did not realise the gravity of the situation and except blacklisting status of the RP (Registered Persons), no efforts appear to have been made for retrieving loss of revenue incurred on account of issuance of refund amounting to millions of rupees.

The FBR also did not make any effort to unearth the culprits from within and out, who were involved and connived in the sales tax registration of the fake registered persons. Obviously, the registration and issuance of refund was not a simple task but a teamwork, involving not only the main beneficiaries but also having connivers in the FBR and bank officials who opened the bank accounts. The CCIR RTO-III Karachi had said that Red Alert letters were not in the record received from the defunct RTO.

His silence of the part of CCIR RTO-III Karachi, regarding failure to retrieve huge loss of revenue and not initiating action against the culprits, is also very strange.

FTO report states that this is evidently a case of gross maladministration where, except blacklisting the registered persons, FBR had failed to initiate proceedings for retrieval of bogus refunds. It also sounds strange that the Directorate General I&I-IR (FBR), after conducting such laudable effort of detecting fraudulent activities and issued letters of Red Alerts to the filed formations but did not pursue the matter to its fruition.