Billions in ‘fake’ sales tax exposed in cement sector

The Federal Tax Ombudsman has unearthed a huge scam worth billions of rupees involving fake sales tax supplies on a large scale in the cement sector.

The ombudsman has issued instructions to the Federal Board of Revenue (FBR) to conduct a comprehensive investigation not only in the cement, but also in other sectors with heavy turnover including sugar, steel, cigarettes, beverages and fertilisers.

According to the Federal Tax Ombudsman's Office, during the investigation of a complaint filed by a cement retailer, it was found that two major suppliers had disclosed a huge supply to the complainant company while filing their sales tax returns. However, the complainant denied this, saying that the suppliers had not provided it with the cement.

The complainant reported the case of “fake” sales tax supplies shown by the suppliers to the regional tax office (RTO) in Abbottabad.

However, the RTO did not register these “fake” sales tax supplies in the management information system (MIS) records of IRIS – an online portal where income tax return is filed.

The complainant then approached the Federal Tax Ombudsman’s Office.

The ombudsman’s office during its probe found that the RTO had informed that the supplier company had sold the cement to the complainant, showing that they were an unregistered buyer.

The tax profile of the supplier company had been scrutinised on findings that during July 2019 to July 2O21, the registered person had made sales amounting to Rs6.8 billion and sales tax involved came to Rs1.22 billion.

As per the IRIS record, the supplier company was selected for audit under Section 177 of the Income Tax ordinance, 2001 for the tax year 2016 and 2019. Audit proceedings for the Tax Year 2016 have been finalised under Section 122 (1) of the Income Tax ordinance, 2001 and tax demand amounting to Rs694 million has been created.

However, audit proceedings for the tax year 2019 are pending. Therefore, during the proceedings, the content of the complaint would be kept in view and finalised under the relevant provisions of law.

The RTO Abbottabad has been directed to take corrective measures in the complainant’s MIS record of IRIS as per the findings of the investigation.

Apart from this, the Federal Tax Ombudsman has also directed the FBR director general of inland revenue to conduct a comprehensive investigation into other sectors as well.