Under scrutiny: Massive irregularities in HEC payments, taxes

Auditor general’s report states misconduct in purchase of software licences services


Riazul Haq January 01, 2016
Auditor general’s report states misconduct in purchase of software licences services. PHOTO: fb.com/Higher-Education-Commission-Pakistan

ISLAMABAD:


The higher education’s top regulatory body has incurred a loss of Rs8.96 million to the national exchequer as a result of less recovery of income tax and Rs19.6 million in unauthorised payment of general sales tax in purchase of software licences services, during 2010 to 2012.


The irregularity and non-compliance was reported in auditor general’s report of 2014-15 with detailed audit paras.

The Income Tax Ordinance 2001 states that six per cent withholding tax should be deducted on payments made to contractors. While the Federal Board of Revenue (FBR) clarified in 2011 that transactions such as downloads from internet without accompanying backup on hardware medium, subscription charges, licencee fee only for usage, upgradation, maintenance charges, and training fee are not liable to sales tax.

The HEC incurred expenditure of Rs385 million on acquiring software licencing services for online activation from a private company, during 2010-2012. The audit observed that the HEC, against subscription of these licenses, deducted 3.5 per cent income tax that is Rs14.16 million instead of six per cent amounting Rs23.1 million, resulting in less income tax recovery.

Similarly, general sales tax (GST) of Rs24.54 million was claimed by vendor, out of which Rs4.9 million (20 per cent) was withheld while the balance of Rs19.6 million was paid to the vendor.

“Audit is of the view that less recovery of income tax deprived government from its due receipts,” stated the audit report.

The HEC management replied to the audit para that around 3.5 per cent income tax was deducted on payments in 2010-11 while in 2011-12 the government imposed GST and the software was supplied on hardware medium i.e. CDs and DVDs, and GST was liable to be paid accordingly. The exemption was only for the downloadable products. The GST along with income tax of about 3.5 per cent was deducted from the invoices submitted by the private firm. “The payments made against the taxes were as per rules,” the HEC replied.

The audit reported that this reply was unacceptable because the HEC acquired software licensing services and no CDs and DVDs were provided by that firm. “Therefore for services, income tax of six per cent was to be deducted during 2010-11 while no GST was paid during 2011-12. This was also evident from HEC’s record wherein no GST was paid and income tax (six per cent) was deducted during 2012-13 confirming that ‘online services’ were acquired instead of CDs and DVDs.

The meeting of Departmental Accounts Committee was held in January 2015 where the HEC stated that recovery of the remaining amount would be made from the balance amount of the private company as retained by HEC. “The firm has been requested to provide proof of 80 per cent of GST deposited with FBR which would be provided to the audit,” the HEC replied.

“Audit recommends recovery of irregularity as paid GST besides less recovered income tax,” the report concluded.

Published in The Express Tribune, January 2nd, 2016.

COMMENTS

Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ