Home »Articles and Letters » Articles » Sordid story of tax frauds – II
The following is the summary of major tax frauds, reported in the Press since 2005:

-- On December 10, 2012, Chairman FBR appointed two inquiry committees to investigate multi-billion rupees refund scams and the loss of up to Rs 1,190 million in revenues in the wake of a letter written by Additional Commissioner Large Taxpayer Unit (LTU) Karachi. The reports of committees are still not made public.

-- During the first five months of the current fiscal year, the revenue loss, according to FBR's own admission, stood at Rs 200 to Rs 250 billion, but no curative measures have been made to recoup these admitted losses till today or at least no information is made public.

-- FBR says that its data shows that fake input adjustments and illegal refunds caused at least loss of Rs 537 billion in losses to the national exchequer. Such a huge figure, if correct, is really alarming. It discredits the entire system. Public Accounts Committee must summon Chairman FBR and inquire about it. It is a national scandal that should not go unnoticed.

-- Recently, Commissioner Inland Revenue (Appeals-II) Karachi sent a message to FBR Chairman alleging that a senior FBR official had given incentive to two fertiliser companies of the same group causing a loss of Rs 690 million and Rs 500 million to the national exchequer. It is unusual coming from an appellate authority when law gives him power to retrieve this loss. He has power of enhancement of income, etc.

-- In November 2012, 52 companies in Karachi alone were blacklisted, while registration of 10 was suspended/blocked after their alleged involvement in what tax authorities termed as a 'daylight dacoity'. The blacklisted companies provided fake input adjustment invoices resulting into fake refunds of Rs 40-45 billion.

-- In August 2012, FTO instructed the FBR to restructure the Pakistan Revenue Automation Ltd (PRAL) and Investigation & Intelligence with a view to transforming them into proactive agents of sales tax fraud prevention and detection. The FTO gave these instructions on a decision on a complaint filed by a Lahore-based advocate. According to the complaint, tax fraud taking place on such a large-scale could not be perpetrated without insider information and support.

-- In July 2012, Rs 47 billion tax scam involving five cellular companies surfaced when NAB barred the FBR from granting what it termed unjust relief through a Statutory Regulatory Order (SRO) giving waiver in respect of tax chargeable on interconnection service to these companies. It is strange that till today no action is taken against the culprits.

-- In April 2012, while the imbroglio surrounding one of the country's biggest scams of missing containers was still lingering on, another 785 boxes belonging to Afghan Transit Trade went missing. They were not de-sealed at the customs border check posts. This raised a big question mark about the performance of the customs authorities because disappearance of boxes from computer screen at any stage raised controversies, difficult to be substantiated when it came to investigation or litigation. Missing container case even after taking action by the Supreme Court is lingering on and there is no report about the actual loss of revenue (which according to FBR's own admission was about Rs 45 billion) and any retrieval so far.

-- In March 2012, sales tax scandals amounting to Rs 159 billion were unearthed involving multinational companies and large industrial groups. Large Taxpayer Unit in Karachi detected sales tax fraud amounting to Rs 25 billion. Islamabad's Large Taxpayer Unit, which detected Rs 10 billion worth of sales tax fraud and Lahore's Large Taxpayer Unit, pointed out unlawful adjustments in sales taxes to the tune of Rs 8 billion.

-- In April 2011, the Directorate of Intelligence arrested two persons involved in issuance of fake sales tax invoices for generating illegal input tax adjustment or refund. Both were wanted in a tax fraud case of Rs 7.5 billion.

-- In 2010, the Directorate General of Intelligence and Investigation detected 166 cases of tax evasion, involving duty and taxes amounting to Rs 2,828 million in the first six months (July-December) of 2009-10.

-- In 2009, 59 cases of duty and tax evasion amounting to Rs 1,603 million were detected.

-- On 14th January, 2008, Directorate-General of Intelligence and Investigation detected "an organised tax fraud in Punjab involving a gang of income tax officials, who issued fraudulent refunds to the fake government contractors". According to details "the nature of this tax fraud was entirely different from the modus operandi of the income tax gangs recently busted in Enforcement Zone, Companies-IV, Karachi and Lahore".

-- On 5th January 2008, a report was published in leading newspapers disclosing that FBR unearthed a scam in Lahore involving a senior income tax official (Grade-20), who allegedly issued bogus refunds of over Rs 103 million in 39 cases on forged documents during 2003-2007. Earlier a similar scam was reported in Karachi.

-- On 22nd October 2007, Directorate-General of Intelligence, Customs and Excise, instituted criminal proceedings against 14 industrial units of Punjab for claiming illegal sales tax refunds by filing bogus invoices. The fraud took place two years ago when many commercial exporters had claimed illegal refunds on the basis of fake documents (FBR took two years to take notice of the crime!). Obviously the beneficiaries were giving huge bribes to concerned officials, who are still working without any fear of accountability.

-- On 2nd June 2007, FBR issued notices to pay some phone companies for recovery of Rs 370 million falsely claimed refunds. The Board launched adjudication proceedings against these companies involved in obtaining illegal excise duty refund. In this connection, formal notices have been served to these companies.

-- On 14th May 2006, the apex court rejected the bail application of one Raja Zaraat, "who was wielding far larger financial clout than originally estimated" in getting billions of rupees as tax refund on forged documents [says a Press release of FBR!). The FBR disclosed that although the first complaint against the accused was received by it in December 2005 yet no action was taken till 4 May 2006 when the accused was arrested in Islamabad. It is obvious that this colossal tax fraud was not possible without the connivance of tax officials.

-- A scam in Lahore involving a senior income tax official (Grade-20), who allegedly issued bogus refunds of over Rs 103 million in 39 cases on forged documents during 2003-2007, was unearthed. FBR sources in the Directorate General of Intelligence and Investigation revealed that the official not only tampered with the tax record in certain cases, but also grossly violated rules and regulations, particularly Income Tax Ordinance 2001 to facilitate the illegal refunds. Tax fraud in the Companies Zone, Lahore, appeared to be committed on the same pattern as Companies Zone, Enforcement Zone-B Karachi. The astonishing part of the story, as narrated in press report, was that the corrupt official was appointed to work as Member Tribunal to settle income tax-related disputes of taxpayers. He also issued illegal refunds during his appointment on other positions in Lahore, showing serious loopholes in the system to check the wrongdoings of senior tax officials in field formations. (To be continued tomorrow)

Copyright Business Recorder, 2013

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