FTO wants FBR heads to roll in alleged tax fraud case

ISLAMABAD: The Federal Tax Ombudsman (FTO) has tasked the Federal Board of Revenue (FBR) to tack together a high-powered fact-finding committee to fix the responsibility in alleged bogus refunds case and the board’s failure to come up with a tax demand worth millions.

The FTO has given three months to the tax authority to get to the bottom of these cases, name those found guilty, and penalise them indiscriminately.

The News International broke the news of alleged tax fraud, which the previous FBR administration was trying its best to hush up to save the skins of some of its top officials.

The new details, acquired by The News, showed that a subsidiary outfit was created due to which the FBR could not generate a tax demand of Rs569.9 million, thus it could not be recovered.

The FTO, while deciding an Own Motion investigation on April 28, 2021 directed the FBR to constitute a committee to probe into the income tax refund scam.

As per details, while investigating the issuance of bogus refunds amounting to Rs123.364 million for Tax Year 2007 to 2009 & 2011 in an earlier Own Motion case (0200/OM/2019) some additional irregularities were unearthed, warranting authorisation of instant investigation.

Moreover, in order to ascertain whether the irregularities committed earlier continued in the cases of M/s China National Electric Wire & Cable Import & Export Corporation and its associates (M/s Sinotec Co and the main shareholder of AOP) in the subsequent years, this Own Motion investigation was initiated under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000.

During earlier proceedings, it was revealed that M/s China National Electric Wire & Cable Import & Export Corporation did not file returns for Tax Year 2013 and onwards. Instead, a sister AOP namely M/s Sinotec Co was registered on the FBR portal on 01.11.2011, with the main shareholder (common member in both AOPs), holding a 99 percent share.

The initial investigations have identified glaring discrepancies/maladministration on part of FBR in cases of these companies.

Action u/s 182,184 & 187 for Tax Years 2007 to 2009 & 2011 & 2012 could not be taken earlier and was taken now, raising demand of Rs569.989 million that, however, is yet to be recovered.

Although the main shareholder, main partner of M/s China National Electric Wire & Cable Import & Export Corporation & M/s Sinotec Co, was available in Pakistan till 2019, no demand notice was served upon the company.

Similarly, arrear registered in respect of demand raised in the years 2007 to 2009, 2011 & 2012 u/s 122(5A) of the Ordinance could not be traced.

Furthermore, counterfoils of refund vouchers are not traceable. M/s Sino-Tec Co filed returns for various years declaring the status of Non-Resident in contrast to the status of Resident as per registration profile in ITMS.

Returns filed by M/s Sino-Tec Co, revealed that although it was declared that payments were received against certain contracts and tax was deducted, it was unclear in whose name the contract was accorded and assessment, and tax deduction was made and credit of tax was given.

Also, the nature of receipt and rate/section of tax deduction is not available on record.

It was reported that recovery could not be affected by the main shareholder, a Member of AOP, because he left Pakistan long ago and the matter was reportedly taken up with the Govt. of China for recovery due to the non-traceability of the said person.

In view of the above, the FTO has directed the FBR to take remedial action on these cases in 90 days.