ISLAMABAD: The Federal Tax Ombudsman (FTO) has taken a suo motu notice and directed the Federal Board of Revenue (FBR) to initiate disciplinary action against tax officials involved in sanctioning of millions of bogus sales tax refunds during the 2011-14.

The notice was taken following an investigation conducted by Directorate General Intelligence & Investigation of Inland Revenue (DG I&I-IR) FBR which revealed that in four cases, the tax officials released over Rs64 million refunds in violation of law.

The break-up showed that in the case of Crescent and Yasdan Traders International, Rs46.916m sales tax was refunded. Similarly, AZ had been issued sales tax refund amounting to Rs7.507m. Silicon International had been issued Rs5.458m sales tax refund while Amharic Traders had been refunded Rs4.120m.

Sales tax refund fraud cost exchequer millions of rupees

The FTO investigation revealed that DG I&I-IR had issued “Red Alerts” in such cases to the concerned field formations but neither any action was initiated against the fake claimants and their connivers in the FBR and Pakistan Revenue Authority Ltd management nor was any action proposed against the related bank officers who opened the bank accounts through which refund cheques were drawn.

The FBR’s failure over such an important anti-tax evasion exercise carried out by the DG I&I-IR led to serious instances of maladministration on account of certain acts of omission and commission, reflecting improper motives, jeopardising good governance and transparency in tax administration.

The FTO findings reveal that fake persons were registered with the connivance of FBR staff, refunds were claimed on the basis of fake and flying vouchers which led to massive loss to already cash-starved exchequer.

Although the Director I&I-IR Karachi issued alerts, FBR officials did not realise the gravity of the situation. The investigation noted that other than blacklisting registered persons, no efforts appear to have been made for retrieving the revenue losses incurred on account of issuance of refund amounting to millions.

The FBR also failed to make any effort to unearth the culprits from within and out, who were involved and connived in the sales tax registration of fake registered persons. Obviously, the registration and issuance of refund was not a simple task but required teamwork, involving not only the main beneficiaries but FBR and bank officials who opened the bank accounts.

According to FTO, the CCIR RTO-III Karachi had tried to absolve himself from the responsibility by simply stating that alert letters were not in the received from the defunct RTO. His silence of the part of CCIR RTO-III Karachi, regarding failure to retrieve huge loss of revenue and not initiating action against the culprits, is also very strange.

The FTO report states that this is evidently a case of gross maladministration where, except blacklisting the registered persons, the FBR had failed to initiate proceedings for retrieval of bogus refunds.

It also sounds strange that the Directorate General I&I-IR (FBR), after conducting such laudable effort of detecting fraudulent activities and issued letters of red alerts to the filed formations but did not pursue the matter to its fruition.

Published in Dawn, December 24th, 2019