In breach: Financials reveal FBR’s ‘compensation’ to banks

Four banks receive Rs12b of taxpayer money due to advances given to tax bureau

ISLAMABAD:

In total disregard to the taxpayers’ money and a breach of trust of parliament, the Federal Board of Revenue (FBR) has paid over Rs12 billion in ‘compensation’ to four banks against roughly Rs50 billion advances obtained to inflate the tax collection figures.

The practice of obtaining advances from commercial banks to inflate the tax collection just before the close of a fiscal year is continuing for almost four years, reveals financial statements of four commercial banks.

It involved two governments including the incumbent and five chairmen of the FBR, starting from former chairman Salman Siddique. Q-Block – the seat of the finance ministry – also remained involved in this unlawful act.

Financial accounts of National Bank of Pakistan (NBP), Allied Bank Limited (ABL), MCB Bank and Habib Bank Limited (HBL) showed that the FBR paid them over Rs12 billion “in compensation on delayed refunds”.



The banks have been forced to give advance, which the tax authorities later on could not return to keep showing inflated collection, said the people who remained part of this on-going practice.

Out of Rs12 billion, the maximum compensation of Rs8.7 billion was given to NBP from 2011 to June 2014, revealed the audited financial statements of the state-owned entity. It also highlights the fact that being a state entity it was prone to pressure exerted by the FBR headquarters and the Q-Block.

The MCB received Rs1.12 billion in compensation in 2014 – the PML-N tenure. The ABL received roughly Rs2 billion in 2013 till September 2014, again in the PML-N tenure. HBL received only Rs222 million from 2012 to 2013.

The Securities and Exchange Commission of Pakistan (SECP) and State Bank of Pakistan (SBP) are also aware of these transactions.

The disclosure of compensation in the banks’ balance sheets put a big question mark on the final revenue collection figures of fiscal years 2011-12, 2012-13, 2013- 14 and on the collection of first half of this fiscal year.

“Technically, the FBR borrowed and borrowings cannot be treated as revenues”, said Shabbar Zaidi, a partner at the country’s one of the leading chartered accountant firms, AF Ferguson. He said the refunds cannot be treated as tax collection.

After one of the banks took the FBR to a tax tribunal for its failure to either return the advances or adjust against tax liabilities, the FBR started paying them 15% interest rate on the gross amount by misusing the Income Tax Ordinance of 2001.

Section 171 of the Income Tax Ordinance authorises the FBR to pay 15% compensation on admissible due refunds. However, a tax practitioner says this section does not apply here as the FBR’s intention was to inflate revenue collection. Sources in the FBR revealed that most of the advances were obtained without creating a tax demand on promise that these will be returned soon.

Some of the compensation payments were camouflaged from the auditors by creating “fake tax demands” by the same amount, an FBR official who handled these transactions revealed.

At present, the total outstanding refunds stand close to Rs200 billion including Rs50 billion of the banks, said an official. However, FBR insists that refunds are slightly over Rs100 billion.

The move is tantamount to deceiving the International Monetary Fund (IMF), the Parliament and media and apparently there is no end to this unlawful act. The Federal Tax Ombudsman (FTO) – the office setup to check FBR’s maladministration, is also investigating this matter, confirmed an official of the FTO to The Express Tribune. He said the FBR was not cooperating with the FTO and using delaying tactics.

A circular of the FBR bars its commissioners from paying compensation on refunds. It states that the commissioner will issue the refund voucher within three months from the date the refund order is made and compensation must be avoided under all circumstances. The same circular also stops the FBR officers from rejection of genuine refunds.

Published in The Express Tribune, February 17^th, 2015.

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