ISLAMABAD: Federal auditors have detected 2,000 fake sales tax refund cases in addition to hundreds of cases where tax authorities have failed to levy the minimum income tax in violation of the law, causing a loss of billions of rupees to the exchequer.
The issues of fake sales tax refunds and non-levy of minimum income tax highlight two problems in the Federal Board of Revenue (FBR) – inefficiency and corruption.
“During a special audit of 200,000 refund cases for the period January-June 2016, we have found that 1% of the cases were fake,” said Director General Audit Inland Revenue South, Nisar Memon, in a meeting of the Public Accounts Committee (PAC).
He did not disclose the exact amount involved in the fraud but said it was surely in billions of rupees. These cases were related to the Karachi region.
The director general of the Auditor General of Pakistan (AGP) department informed PAC that tax authorities were not cooperating and the case was not moving forward.
Memon said the FBR did not share post-refund audit reports with the federal auditors. The AGP acts as the external auditor of the FBR.
He said the release of refunds was a high-risk area, therefore, the AGP performed the special audit.
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The Directorates General Audit Inland Revenue presented the audit reports on revenue collection during financial year 2013-14. They highlighted 28 objections involving Rs121.8 billion worth of revenues, suggesting lower recovery due to various reasons including corruption and inefficiency of the department.
PAC directed the FBR senior management to hold an inquiry into the conduct of officers who were not cooperating with the federal auditors.
However, Member Inland Revenue Policy FBR, Rehmatullah Wazir, contended that there were no major cases of flying invoices of sales tax after the FBR made its system foolproof.
In another audit objection, the AGP unearthed 455 cases where the FBR did not levy the minimum income tax on certain persons, causing a loss of Rs4.3 billion to the exchequer, said DG Audit Inland Revenue North, Irfan Wattoo.
The member inland revenue said the authorities had so far recovered half of the amount after the auditors pointed out the lapse.
However, Ashiq Gopang, Acting PAC Chairman, said mere recovery was not sufficient and the FBR must take action against its officials.
The auditors pointed out that 18 field formations of the FBR were involved in the case.
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“It seems that FBR officers were deliberately making these mistakes and the pattern showed that some high officials allowed this to happen,” said Syed Naveed Qamar of the Pakistan Peoples Party.
PAC directed the FBR to hold a detailed inquiry and submit a report after taking action against the officials who caused the loss.
PAC also discussed the FBR’s performance in terms of revenue collection and bringing people under the tax net.
FBR Member Operations Inland Revenue Dr Mohammad Irshad said during the first half of FY17 the pace of revenue collection growth was almost at last year’s level due to the change in government’s policies.
He said the collection got hurt due to reduction in tax rates on petroleum products, grant of zero sales tax facility to export-oriented sectors and a low interest rate environment.
Irshad said the number of income tax return filers fell this year after the FBR decided not to give further extension in the dates for filing the returns.
In tax year 2015, about 1.075 million people had filed the returns, which dropped to 871,000 in 2016. However, the FBR officials said the figure was better when compared with the number of returns filed till December 31, 2015.
Wazir said against 871,000 returns filed this year, the number stood at 691,000 in the preceding year.
The FBR had set the target to increase the number of income tax return filers to 1.2 million, which it could not achieve.