ISLAMABAD: Finance Minister Muhammad Aurangzeb said on Thursday that big companies are responsible for about half of the total tax evasions, which amount to Rs3.4 trillion, and warned chief financial officers (CFOs) of these companies not to sign incorrect returns to avoid severe punishments.

Addressing a press conference along with Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial, the finance minister divulged on the action plan against tax evaders, including up to 10 years in jail and heavy fines and penalties. The owners of the fifth-largest footwear company were recently arrested for involvement in tax evasion.

A massive enforcement operation is planned and will take place in the coming weeks, he said, adding that the government has no choice but to aggressively implement enforcement measures.

“Pakistan cannot achieve sustainable growth with a tax-to-GDP ratio of 9-10pc, said the minister, stressing this ratio should be about 13pc.

According to the finance minister, non-filers would face difficulties. The FBR chairman stated that there would be no category of non-filers from Oct 14.

Mr Langrial termed the input tax adjustment a fraud in Pakistan. He warned CFOs to refrain from signing incorrect returns, especially before Oct 14 deadline. Those involved in tax evasion will face consequences, he warned.

The FBR chairman said that an attempt would be made to introduce sales tax in a VAT mode. He recognised that the FBR currently faces human resource challenges in implementing sales tax in the VAT manner. However, he stated that specialised training will increase human resource strength as well as audit capacity.

Mr Langrial warned that no one would be spared, including tax officers caught in tax evasion. He said that the FBR’s automation company — Pakistan Revenue Automation Ltd will be reformed.

Data analytics reveal that most of the companies of the five sectors — iron and steel, cement, beverages, batteries, and textiles — misreport turnover, claim extra input tax, and use fake invoices. According to the study, majority of the companies claimed excess input tax.

Mr Aurangzeb said that the FBR has already detected and acquired evidence of tax fraud in several sectors, including 11 cases in the battery sector, 897 cases in the iron and steel sector, and 253 beneficiaries of fake input claims on coal purchases. The total amount of sales tax fraud committed in these sector is Rs227bn.

The details show that out of the 33 large businesses engaged in iron and steel sector, representing more than 50pc of total reported sales, were found in evasion of sales tax by claiming excess input tax of Rs29bn. The major source of fake and dubious input tax is claim on the purchase of scrap metal and coal.

The six active cases of the battery sector, representing 99pc of total reported sales reveals that a major part of this sector bas claimed excess input tax adjustment of Rs11bn primary through input tax claim on the purchase of lead. Likewise, in cement sector, 19 active cases claimed Rs18bn in excess input tax in FY24, mainly through coal purchases.

The beverages sector with 16 active cases, representing 99pc of aerated water sales, claimed Rs15bn in excess input tax, mainly through sugar, plastics, and services purchases, whereas the textile sector with 228 active cases claimed Rs169bn in excess input tax, mainly through services, chemicals, coal, and packaging purchases.

Published in Dawn, October 11th, 2024