FAISALABAD: A dairy company inflicted a loss of millions of rupees on the national kitty through withholding tax evasion with alleged connivance of the Federal Board of Revenue (FBR) officials.

The company purchased milk worth Rs1.1bn in 2015, Rs1.8bn in 2016, Rs1.8bn in 2017 and Rs4.5bn in 2018 and 2019. The purchase was liable for withholding tax, however, the FBR Sahiwal regional tax office officials did not charge the tax.

Findings of an inquiry available withDawn,read the FBR Inland Revenue Officer Ghulam Mustafa Shah while finalising proceedings u/s 161 (1) of the Income Tax Ordinance, 2001 in the case of a dairycompanyfor the tax years 2018 & 2019, vide orders dated 24 Jan, 2020 & 19 Aug, 2020, had extended benefits of Clause (v) of SRO 586(I)/91, dated 30. 06. 1991, in respect of purchases of milk without bringing on record the evidence of the purchases from the producers/growers.

Clause (v) of SRO 586(I)/ 91, dated 30. 06. 1991, stipulates that the provisions of clause (a) of sub-section (1) of section 153 shall not apply on sale of agricultural produce, including fresh milk, by the growers/producers of agricultural produce.

Two FBR officials found involved in the scam

The officer misstated in his orders that the growers/producers certificates were obtained, placed on record and granted illegal exemption to the taxpayer from withholding tax u/s 153(1) (a) on its entire purchases of milk and caused loss of revenue of Rs415m to the national kitty.

The report of the findings read that show cause notice for initiation of disciplinary proceedings against Mr Shah were issued and Additional Commissioner IR, Sahiwal, Abdur Razaq Khan on Oct 5 last with the observation that the matter related to the withholding audits of the largest revenue spinner of the RTO as to why this illegal act of the officer might not be treated as supervisory ineffectiveness, incompetence or connivance.

Mr Shah claimed that the record, in respect of purchases of milk from the growers/producers, submitted by the taxpayer during the audit had been traced out by the record keeper and provided to the additional commissioner IR along with his explanation for onward transmission to this office with his comments, the documents read.

Mr Razaq Khan intimated that the officer had validly granted benefits of Clause (v) of SRO 586(I)/91 to the taxpayer. The documents read that Mr Khan was asked to submit the record along with an explanation defending his (Khan’s) own position. However, neither the record nor any explanation was submitted.

Mr Khan was also intimated time and again that the jurisdiction of the case had already been transferred to Large Taxpayer Office, Multan and the record was required to be transferred but nothing was done.

On Nov 10 last, Mr Shah, recovered the record from his office when he was on leave and submitted it.

As per growers/ producers certificates, available in that record, milk of Rs443.4m and Rs169.3m was purchased from 50 and 47 growers /producers for the tax years 2018 and 2019, respectively.

Remaining purchases of milk Rs1.9bn and Rs2.6bn for the tax year 2018 and 2019 were not made from growers /producers from whom withholding tax u/s 153(1)(a) of the Income Tax Ordinance,2001 was recoverable, the documents showed.

The fresh milk is exempted from deduction of withholding tax only if it is purchased directly from the grower/producer of milk subject to the provision of a certificate as prescribed in SRO 787(1)/ 2011, dated Aug 22, 2011.

“While finalising proceedings u/s 161(1) of the Income Tax Ordinance, 2001 Mr Ghulam Mustafa Shah, IRO, extended benefits of Clause (v) of SRO 586(I)/91 dated 30. 06.1991 and compromised revenue of Rs171 million and Rs 240 million. He has proved to be inefficient or ceased to be efficient as defined in the Efficiency & Discipline Rules 1973,” the documents read.

They further said the same firm had been given the benefit and exempted from the tax in 2015,2016 and 2017, causing a loss of about Rs292m.

Sources said chief commissioner FBR, Sahiwal RTO, Ahmed Shahab, was informed to look into the issue for action against the culprits and recovery of the evaded tax amount. However, nothing had been done, they added.

This scribe contacted Mr Shahab with some queries for his version on Dec 28, however, he did not reply.

Published in Dawn, January 4th, 2021