‘Sugar mills hide Rs220bln transactions from FBR’

KARACHI: At least nine sugar mills concealed Rs220 billion of transactions from the Federal Board of Revenue (FBR) to evade taxes, sources said on Tuesday.

The Large Taxpayers Office (LTO) Karachi, the biggest revenue collection arm of the FBR, in its ongoing audit exercise of sugar mills detected the nine sugar mills didn’t disclose their credit entries and other transactions to the tune of Rs220 billion in their annual accounts. The LTO Karachi has jurisdiction over 29 sugar mills for assessment of income and sales.

The tax office so far finalised income tax audits in 130 issues of nine sugar mills and passed orders for recovery. The tax office completed audits of the past five years in these nine sugar mills. Further, the audit of remaining sugar mills was in progress.

The sources said the concealed amount was detected through credit entries of their bank accounts. Besides, the concealed amount also identified few other heads of accounts.

They said the concealed amount is around 60 percent of total declared sales by the sugar mills. The amount has become part of the informal economy. According to various studies, the size of the informal economy in Pakistan is larger than the formal one.

The sugar mills were asked to reconcile the amount, but they failed to present plausible reasons. Rs64 billion was imposed as tax under Section 111 of the Income Tax Ordinance, 2001.

The sources said 100 percent penalty on Rs64 billion would also be imposed at the time of recovery.

The tax offices imposed Rs85 billion for recovery of tax on nine sugar mills, including Rs64 billion on concealed amounts.

The tax office last month issued notices to sugar mills under the Income Tax Ordinance 2001 after obtaining third party information, including undeclared transactions made through banking channels. On the basis of initial assessment of declarations submitted by sugar mills on the basis of third party information, the LTO Karachi estimated tax recovery of around Rs150 billion after completion of audit exercise.

The recovery notices sent to nine sugar mills, the tax office detected major discrepancy in purchase of sugarcane by the mills. It is pertinent to mention here that withholding tax is exempted in case sugar mills directly purchase sugarcane from growers.

The sources said sugar mills failed to provide details of purchases including CNICs, addresses, quantity purchased, per unit price and total payment made with respect to growers from whom sugarcane was purchased. In some cases the sugar mills made cash transactions from banks but failed to explain the utilization of the amount. The sugar mills failed to explain expenses under the head of charity and donations. The sources said that the charity and donations made by the mills were not as per Section 61 of the Income Tax Ordinance, 2001. Therefore, such expenses were disallowed.