FBR orders inquiry into alleged tax fraud

Move comes after ombudsman’s directive to initiate proceedings

Shahbaz Rana August 18, 2020


The Federal Board of Revenue (FBR) has ordered a fact-finding inquiry against one of its core board members after tax ombudsman gave directive for initiating criminal proceedings against him for alleged “tax fraud”.

Two FBR officers, including its Member Inland Revenue Policy Chaudhry Tarique -the person responsible for budget-making - and Ashfaq Ahmad, currently serving in the Regional Tax Office Islamabad, have been accused of illegally issuing tax refunds of Rs122.6 million between 2006 and 2009.

The FBR unearthed the matter in 2013 and ordered the recovery of “inadmissible income tax refunds”. But no action was taken until the Federal Tax Ombudsman (FTO) stepped in and asked the FBR to take action.

The FBR has confirmed the development to The Express Tribune. The officer denies the allegations.

Grade-21 officer Asim Ahmad has been appointed in charge of the fact-finding inquiry with the directive to complete it by August 27. Tarique has recently been appointed member Inland Revenue Policy. He is in charge of tax policy matters, including negotiations with the International Monetary Fund (IMF).

In his capacity as the additional commissioner Inland Revenue, Tarique had endorsed the release of refunds to a Chinese company that supplied electric goods to the government. The government department had deducted income tax but the amount was subsequently paid back to the company. The taxpayer had been treated as a non-resident.

Paying bogus refunds or issuing refunds in return for kickbacks has remained a chronic issue in the FBR and the most serious complaint. The FBR has lately started taking action against its officers who are involved in any kind of wrongdoing.

Official documents showed that the FTO has sought initiation of criminal proceedings in the case of what it called “glaring tax fraud”. It has also ordered the fixing of responsibility for fake registration, processing dubious invoice claims, sanctioning fake claims, overruling systematic/manual objections and issuance of bogus refunds.

The FTO also gave directive for “immediate sidelining of internal connivers and initiation of formal disciplinary proceedings”.

“Cognizance was taken in the case of sanctioning and issuing of bogus refunds of Rs122.6 million for tax years 2006, 2007, 2008 and 2009, which were identified by the Directorate General of Intelligence and Investigation-IR of FBR in 2013,” according to FTO documents.

“Action of issuance of bogus refund of Rs122.6 million has been found plagued with serious instances of maladministration, evident from certain acts of omission and commission, reflecting improper motives and jeopardising good governance and transparency in tax administration,” stated the official record.

The FBR’s Intelligence and Investigation wing was of the view that the tax deducted from China Electric Wire was full and final liability of the taxpayer and the FBR should not have adjusted it.

In 2013, the FBR issued Rs122.6 million worth of tax demand under Section 122 (5A) of the Income Tax Ordinance. The taxpayer did not challenge the FBR’s order to pay the amount and the commissioner also did not revise the order.

“The order to pay Rs122.6 million in taxes remains in the field as neither the taxpayer challenged the order nor the FBR revised it,” said Dr Ikramul Haque, a lawyer at the Supreme Court of Pakistan. He said only an appellate tribunal could undo the tax demand or the FBR could revise it, which it did not.

The FBR in September last year stated that the refunds were genuinely issued but the FTO took an exception to the stance on grounds that the FBR itself admitted to the wrongdoing by creating a demand against the taxpayer and the taxpayer never filed an appeal against the FBR’s post-refund issuance demand.

“Apparently, the departmental officers are supporting the illegal action of the officers, who are responsible for a huge loss of revenue,” according to the FTO’s documents.

In case of an inordinate delay in taking action on the directives of the FTO, the FBR may face contempt of court charges, as the FTO enjoys powers of a judge.

FBR’s version

“The matter of alleged bogus refunds came to the FBR’s knowledge after Tarique’s appointment as member IR policy and now a fact-finding inquiry has been constituted,” said the FBR in response to the questions sent by The Express Tribune.

The decision about further proceedings in the case would be made on the outcome of the fact-finding inquiry, according to the FBR.

As per rules, in case an officer is found guilty, the prime minister has the authority to take disciplinary action against the officer.

Chaudhry Tarique’s version

“The order to pay the refunds had been issued by the deputy commissioner and I as additional commissioner had endorsed the orders, which was subsequently approved by the then commissioner,” said Tarique.

He said there was no doubt that the adjudication order had been passed against the Chinese firm but the recovery had not been made. The member policy said that the question was simple whether the Rs122.6-million payment order was correct or the adjudication order.

The Chinese firm did not have permanent business establishment in Pakistan, therefore, the refund was adjustable, claimed the member IR Policy.

Tarique said nobody approached him between 2013 and July 15, 2020 for knowing the facts of the case. He said he was innocent and the law was wrongly interpreted by the FBR officer who issued the recovery order against the taxpayer.

“My plea is that the adjudication order may be revised and action should be taken against the FBR officer who ordered to recover the refund from the taxpayer,” said Tarique.

Published in The Express Tribune, August 18th, 2020.

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