Tax evasion of Rs21.7b unearthed

One-fifth of the amount is evaded by 38 individuals hailing from Karachi.

ISLAMABAD: The outfit entrusted with the responsibility of generating billions in revenues has instead aided over 150 individuals in shying away from payments of around Rs21.7 billion in tax obligations by allowing the use of techniques such as fake losses, calculation errors, unlawful depreciation losses and reduced tax rates for the ‘blue-eyed’.

The office of the Auditor General of Pakistan has found 153 cases where the Federal Board of Revenue (FBR) facilitated tax evasion – mainly through short assessments of tax liabilities.

About one-fifth of the amount was evaded by 38 individuals hailing from Karachi, who managed to avoid payments worth Rs17.7 billion – a figure higher than the country’s education budget for this year. The discrepancies were pointed out during the audit of the accounts of 2008-09.

The evasion was carried out through fake losses brought forward, calculation errors in computing income liable for taxation, excluding taxpayers from the minimum chargeable amount, unlawful depreciation allowance for buildings, plants, machinery and cars, exempting the income earned from interest, reducing the tax rate for 25 hand-picked taxpayers and allowing excess tax credit.

Another Rs12 billon was forgone ‘due to the negligence of the authorities and by not invoking the relevant rules for tax recovery’, note the official documents.

Meanwhile, those who accurately file returns are made to pay for the sins of the FBR and the few hundred tax dodgers. Instead of increasing the tax base and plugging in the leakages, the authorities are burdening existing taxpayers by increasing rates and levying more charges.

According to one estimate, annual tax evasion is estimated at Rs796 billion, Rs111 billion more than the budget deficit target for this year.

The top auditor’s office has revealed that the FBR permitted an excess depreciation allowance near Rs4.3 billion on account of buildings, plants, machinery and cars in 17 cases. The main beneficiaries hailed from Karachi where eight taxpayers got an undue favour of Rs2.5 billion. In 13 cases, taxpayers were allowed to slip away with Rs1.3 billion by not charging them on account of income from business, unauthorised expenditures adjustment from the chargeable income. Two such cases were reported from the Large Taxpayer Unit in Lahore, one each from the Regional Tax Offices at Abbottabad and Islamabad and seven cases involving Rs984.3 million from Karachi.

In nine cases, taxpayers incorrectly carried forward losses to set them off against the profit of the next year to evade Rs350.8 million in income taxes.

In 31 cases the FBR supposedly made computing errors while calculating the income that caused a loss of Rs1.8 billion. Three such cases were detected in Lahore that caused a loss of Rs1.5 billion.

In 15 cases the authorities did not levy the minimum payable tax or levied less than the required tax that caused a loss of Rs1.2 billion. As many as seven such favours were extended in Islamabad, four in Quetta, two in Hyderabad and one in Lahore.

Excess tax credit to the tune of Rs 475 million were allowed in 16 cases of which a sizeable portion of Rs313 million owed to three taxpayers from Karachi.

Published in The Express Tribune, October 7^th, 2010.