ISLAMABAD: In an unprecedented move, the Federal Board of Revenue has recovered about Rs700 million from a prominent manufacturer in a crackdown on large enterprises engaged in multi-billion rupees sales tax fraud every year.

Another huge sum of Rs1.1 billion is expected to be recovered in coming days from another accused businessperson involved in sales tax fraud, Dawn has learnt from informed sources.

On Oct 11, Finance Minister Muhammad Aurangzeb and FBR Chairman Rashid Mahmood Langrial revealed the findings of a study, which demonstrates that large firms and their managers have been complicit in an annual sales tax fraud of Rs3.4 trillion.

The study established sales tax fraud amounting to Rs227bn in five sectors — textile, beverages, battery, cement, and steel. The FBR has revealed plans to pursue the top five per cent payers of sales tax and the top one per cent of income tax payers who are suspected of failing to pay their actual taxes to the exchequer.

Study claims big companies rob the exchequer of Rs3tr every year

As part of this plan, the Directorate General of Intelligence & Investigation, Inland Revenue, an implementing arm of the FBR, has been entrusted with expediting the crackdown on fraudsters who steal other taxpayers’ payments through illegitimate ways.

The tax intelligence department detained eight people in six separate FIRs filed across the country over the past week. The detained people are suspected to be members of an organised mafia involved in the creation of dummy enterprises for fraudulent paper sales tax transactions.

“We have withdrawn an FIR against one manufacturer after he paid Rs700m voluntarily to the tax department,” the source said. Recovery from the manufacturer confirms that big firms are involved in tax fraud.

These manufacturers were using sales tax and refund to defraud the exchequer of millions of rupees in collusion with gangs. They are also suspected of issuing fake invoices without having genuine purchases.

Dummy accounts

The modus operandi of this collusive arrangement was to open dummy accounts and to issue bogus transport receipts without actual transfer of goods. Then they would claim fake input/refund at all stages of the supply chain.

The arrested suspects include three chief financial officers (CFOs) and a procurement officer of two manufacturing firms. They are believed to have benefited to the tune of Rs1.4bn from fake/flying invoices.

Another two of the arrested are decla­red proprietors of businesses engaged in imports, but they are suspected to have issued excessive and illegal flying invoices worth almost Rs200 million.

Similarly, two other arrested accused were fraudulently creating dummy businesses and issuing fake invoices, causing a loss to the exchequer worth hundreds of millions of rupees. “We are anticipating a recovery of almost Rs1.1bn in the coming days from the arrested accused and their beneficiaries in these six FIR cases,” the sources claimed.

The FBR recently unearthed organised gangs involved in sales tax fraud. They are believed to help top firms steal other taxpayers’ payments by issuing fake and flying invoices without having genuine purchases in order to claim input tax adjustments from the tax department.

To combat sales tax fraud, the FBR required company CFOs to file an affidavit providing personal guarantees that no fraud had occurred. This strategy has proven to be quite effective, since a few CFOs have admitted to fraud in identified sectors, resulting in significant recoveries.

At the same time, organised gangs are utilising their clout in the power corridor to halt the crackdown.

As a consequence of this pressure, the FBR has postponed the requirement of affidavit filing, along with sales tax returns, for one month.

The tax intelligence department has unearthed an amount of Rs136bn in sales tax evasion and fraud in crackdowns since April last year. Of these, Rs8.631bn was recovered from crooks.

The tax department has lodged 56 FIRs against 475 people so far. Eighty-nine suspects have been apprehended while investigations against others are ongoing.

Published in Dawn, October 20th, 2024