Tax fraud of Rs13.5b detected

ISLAMABAD: Auditors have unearthed income tax evasion of Rs13.5 billion in 364 cases involving some big names. Tax experts say evasion on this scale is not possible without the connivance of the Federal Board of Revenue (FBR).

The companies involved in dodging the tax authorities were caught by the office of the Auditor General of Pakistan, after the internal intelligence and investigation wing of the FBR failed to confront the culprits.

In order to evade income tax these companies showed either less sales of goods or services in their income tax returns than what they declared in their sales tax returns.

“The difference represented suppression of sales involving consequential tax loss of Rs13.5 billon,” notes an Auditor General report, “which is equivalent to the amount the government intends to distribute among 650,000 flood-affected families.”

The culprits belong to different sectors including sugar, cement, automobile and food processing.

“Inefficiency of the system and connivance of the FBR made it possible,” said Abdullah Yousuf, himself a former chairman of the FBR. He said because of the integrated services the taxpayers’ data sharing within the FBR was not possible. “The solution is technology that could help plug the loopholes,” he added.

Pakistan has one of the lowest tax-to-GDP ratios, hovering around nine per cent of the total size of the economy. In a nation of 180 million souls the taxpayers are only 2 million, half of them salaried persons. The World Bank has estimated annual tax evasion at Rs796 billion.

The World Bank funded tax reforms proposed to integrate the sales tax and income tax services under the banner of Inland Revenue Services. Nonetheless, the Customs Services put up resistance in the name of protecting its seniority list that may get affected with the merger of other services. The personal agenda is taking its toll on national issues and the evidence is Rs13.5 billion loss in a single year.

The tax evasion took place in the financial year 2008-09 and the audit department completed the audit in June 2010. In that year the Federal Board of Revenue collected Rs440 billion in income taxes as against a target of Rs489 billion. Similarly, the FBR’s inefficiency can be gauged from the fact that the number of actual return filers decreased to 677,442 from 772,992, a dip of 12.4 per cent. The overall collection in 2008-09 stood at Rs1.56 trillion – Rs224 billion less than the target.

Published in The Express Tribune, October 6^th, 2010.