ISLAMABAD (Eshfak Mughal):- The Federal Board of Revenue (FBR) has made payment a hefty amount of Rs.820.565 million sales tax refunds on the strength of bogus and fake invoices of a fake an exporter belong to Multan region through faster without any physical verification of the existence of the business premises.
The Federal Tax Ombudsman (FTO) has recommended for constituting a high level inquiry committee to probe and examine the facts and circumstances which led to issuance of this huge amount of refund and fix the responsibility for the negligence and inefficiency by the concerned department’s functionaries which led to substantial loss to the national exchequer.
Own Motion investigation was initiated by FTC Secretariat, Islamabad on rejection of request of a taxpayer for change of jurisdiction of business from RTO Multan to RTO Gujranwala.
According to the FBR, a taxpayer (Bin Tariq Impex) in the jurisdiction of RTO Multan, is involved in tax fraud and got issued an amount of sales tax refund of Rs.992 million during the period August, 2020 to Sep, 2021 including an amount of Rs.820.565 million has been issued and Rs. 171.5849 million is pending for the tax period 09/2021. The taxpayer has been blacklisted on 22.08.2019 and the case is selected for audit. Show cause notices have been issued on Dec 14, 2022 but no compliance has been made by the Registered Person which remains un-responded till to-date.
Furthermore, a team conducted physical inquiry of declared manufacturing premises both at Multan and Gujranwala. The taxpayer added the new business address at Gujranwala on the day of physical inquiry on 22.09.2021 but declared business activities were not found in conformity.
When the department took cognizance of the issue, the RP attempted to change its jurisdiction to RTO Gujranwala by changing its profile but it was preempted by RTO, Multan through refusal of NOC to the Board for change of jurisdiction.
On initial probe it was found that the taxpayer filed his refund claims through FASTER/ERS for the first time without any physical verification of the existence / capacity of the business premises and continued to avail fast track issuance of refund claims being an exporter till August, when the department suspected his business activity and took measures to stop the same.
The FTO said that the taxpayer has successfully managed to get the refund issued due to inadequate checks and balances in FATER/ERS. The FBR at all levels failed to take timely cognizance of huge refunds which continued to flow for almost a year till the department took notice of this fraudulent activity.
The case is a clear instance of maladministration, neglect, inattention, incompetence, inefficiency and ineptitude, in the administration or discharge of duties and responsibilities, said the FTO. The case requires a thorough investigation at the highest level. It also calls for revisiting the refund systems already in place by creating sufficient, inbuilt checks in order to 6 0093/0M12022 forestall the future repetitions. Some of the measures are proposed in the recommendations part.
According to an order of the FTO, the FBR may consider the following proposals to develop adequate safeguards in refund systems of FASTER/ERS:
- When the manufacturer files first claim of refund in the FASTER, physical verification of the business premises by the concerned Regional Tax Office (RTQ) may be ensured to determine the genuineness of the business activity and determination of its production capacity by co-relating it with its utility expenses. Any change of particulars in Form 181 in IRIS may be made with the prior approval of the concerned Commissioner-IR. A validation check may be put in place to cross-match the purchases declared in the sales tax returns with the capital declared in the income tax return.
- The FBR should co-relation HS-code of goods purchased as declared in sales tax returns may be made compulsory in the IRIS for the refund claimant in order to determine its relevance to the supply chain.
- Built in checks may be introduced in FASTER/IRIS to block refunds in cases of STRN suspension with the same CNIC of individual/AOP member/director of a company. Actual verification of payment deposit may be put in place in the
- FASTER instead of invoice based input verification mechanism. There are only two ways of sales tax payment: i) through CPR, & ii) through Bill of Entry at the time of import. Currently, input validation process through column 7(a) and 7(b) is in place. Evidence based physical transaction will ensure input tax deposit in the government treasury.
On initial probe it was found that the registered person filed his refund claims through FASTER for the first time without any physical verification of the existence/ capacity of the business premises and continued to avail fast track issuance of refund claims being an exporter till August, 2021.
In the wake of foregoing it is clear that the registered person has successfully managed to get the refund issued due to inadequate checks and balances in FATER/ERS. FBR at all levels failed to take timely cognizance of huge refunds which continued to flow for almost a year till the department took notice of this fraudulent activity.
The case is a clear instance of maladministration, neglect, inattention, incompetence, inefficiency and ineptitude, in the administration or discharge of duties and responsibilities in terms of Section 2(3)(ii) of the FTO Ordinance and requires a thorough investigation at the highest level.
It also calls for revisiting the refund systems already in place by creating sufficient, inbuilt checks in order to forestall the future repetitions. Some of the measures are proposed in the recommendations part.
FTO has recommended that a high level inquiry committee may be constituted by the FBR.to probe and examine the facts and circumstances which led to issuance of this huge amount of refund and fix the responsibility for the negligence and inefficiency by the concerned department functionaries which led to substantial loss to the national exchequer.
The CCIR, RTO, Multan may be directed to ensure corrective measures as provided in the Income Tax Ordinance I Sales Tax Act for the retrieval of lost state revenues.
To avoid multiple sales tax registrations on single premises GPS tagging may be introduced in sales tax registration software. During registration process taxpayer may enter GPS coordinates of manufacturing premises in the system and in case of duplicate GPS coordinates system should provide existing STRN of the same premises, FTO added.