Importers found concealing financials to evade taxes

KARACHI: The Federal Board of Revenue (FBR) has found importers involved in concealment of their financial transactions to evade taxes, a tax official said on Monday.

The official said the tax offices, including intelligence and investigation of Inland Revenue, conducted a joint exercise to check the mode of payments for imports and subsequent sales to local buyers. The joint exercise was conducted under anti-money laundering laws to comply with a condition of the global watchdog Financial Action Task Force monitoring money laundering and terrorist financing.

Initial outcome of the exercise revealed that an importer had turnover of Rs14 billion during three tax years (2017 to 2019) but the importer declared Rs6 billion in annual tax returns and wealth statements.

Further, it was discovered that the importer was maintaining 16 bank accounts but declared only 10 bank accounts to the tax authorities. The importer parked around Rs8 billion in his undeclared six bank accounts and failed to explain the source of funds deposited in such bank accounts.

The official said the undeclared funds would have been used for import payment by the importer to the foreign seller. The tax authorities are engaged in identifying the amount used for import payment through a letter of credit and declared amount at the time of customs clearance. The official said initially the tax authorities imposed Rs10 million for tax evasion besides registering cases for money laundering.

The official, without giving the total number of importers under investigation, said a similar method was adopted by other importers to evade taxes. Sources said the FBR tightened noose around importers for their alleged involvement in money laundering for payment of imported goods and suppressing sales to evade taxes.

The sources in Regional Tax Office (RTO) Karachi said commercial importers were enjoying the final tax regime for the past many years, which helped them escape audit. However, last year the government amended the tax laws and brought the commercial importers into the minimum tax regime, an official at the RTO said.

Through the Finance Act 2018, a minimum tax regime was introduced for commercial importers but due to strong lobby the amendment was withdrawn through Supplementary (Second Amendment) Act, 2019.

Through the Finance Act, 2019 the minimum tax was reintroduced for commercial importers for tax collected at the import stage. The intention of the legislature was to promote documentation of the economy by abolishing the final tax regime, the official said.

When the government reintroduced the final tax regime, it faced severe criticism from other stakeholders. The final tax regime eroded the tax base and documentation of the economy since its introduction back in 1992, according to chartered accountancy firm AF Ferguson, which represents PricewaterhouseCoopers in Pakistan.