Fake deals: Textile tycoon arrested for Rs110 million tax fraud

Published: November 7, 2013
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The racket was going on unchecked in both Karachi and Lahore involving reputed textile sector importers of raw material and manufacturers, according to official documents. CREATIVE COMMONS

The racket was going on unchecked in both Karachi and Lahore involving reputed textile sector importers of raw material and manufacturers, according to official documents. CREATIVE COMMONS

ISLAMABAD: 

A reputed textile tycoon was arrested in connection with a tax fraud and later released on bail after he agreed to pay Rs110 million, which was believed to be only the tip of the iceberg as the racket was going on in major cities causing huge losses to the national exchequer.

The Karachi-based textile mill owner was arrested on Friday last week following a major breakthrough achieved by the intelligence arm of the Federal Board of Revenue (FBR) that uncovered a racket pertaining to bogus transactions to evade sales tax.

The racket was going on unchecked in both Karachi and Lahore involving reputed textile sector importers of raw material and manufacturers, according to official documents.

The tycoon was released on bail on Tuesday by the Special Judge of Customs and Taxation after he agreed to deposit a pay order of Rs27.8 million, which is 25% of the embezzled amount, and also gave post-dated cheques for the remaining amount of Rs82.5 million, confirmed an official of the FBR’s Intelligence and Investigation wing.

The intelligence wing had unearthed the Rs400 million fraud, of which the tycoon’s share was Rs110 million. The name of the tycoon, who exports 70% of his manufactured products, and his company, has been withheld due to possible adverse impact of the disclosure on the limited company, which is listed on the stock market.

The Intelligence and Investigation wing is under-staffed and currently its directorate is undergoing changes. The wing has been ignored in the past, allowing tax dodgers, who are operating in all major industrial cities, particularly Karachi, Lahore and Faisalabad, to get off scot-free.

Its present Director General Ijaz Hussain Shah was posted in April this year, but he is still struggling to get the required staff strength to expand the directorate’s activities.

The intelligence arm started investigations into the tax fraud after it got a lead that a number of people, engaged in the business of manufacturing and import of raw material for producing textile products, were misusing a concessionary Statutory Regulatory Order of 2011 aimed at avoiding 5% tax.

A supplier, registered with the Regional Tax Office Karachi, was facilitating the big tycoons. He was arrested by the tax authorities, who gave evidence against the textile tycoon.

The supplier was not a genuine taxpayer and not doing any business in the textile industry but showing just paper transactions to facilitate the textile manufacturing units to evade tax by declaring zero-rated supplies which are otherwise taxed at the rate of 5%, according to the findings of the intelligence wing.

He was involved in declaring fictitious purchases of zero-rated goods from the supply chain of textile industry and the importers, according to the official documents. The bogus buyers of the supplier declared purchases of more than Rs1 billion each time during the period July 2011 to December 2012.

On information provided by the arrested supplier, the tax authorities arrested two more accused from Lahore. They deposited Rs3.2 million and gave post-dated cheques for Rs10 million to get bail from the Special Judge Customs and Taxation. They have also given a statement, highlighting fraudulent activities of the racket.

These arrests eventually led to the arrest of the textile tycoon from Cochinwala Market, Tower Karachi.

Published in The Express Tribune, November 7th, 2013.

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Reader Comments (26)

  • Nadir
    Nov 7, 2013 - 2:29AM

    And why cant he be named? Dont want to annoy his buddies at the Sind Club?

    Recommend

  • fbr guy
    Nov 7, 2013 - 2:32AM

    Or perhaps the name has been withheld due to its close ties with ruling government ….Recommend

  • Usman
    Nov 7, 2013 - 3:28AM

    The day FBR arrests close aides and business partners of both PPP and PMLN will be the day I would consider it a properly functioning body.

    Recommend

  • Nov 7, 2013 - 3:29AM

    Is this guy an apparition, without a name or an identity? If he was arrested, he must have been named in some case. So what’s this game of namelessness, ET?

    Recommend

  • Rahim
    Nov 7, 2013 - 3:56AM

    Why don’t they declare the name?????

    Recommend

  • Insaan
    Nov 7, 2013 - 4:20AM

    Is this Islamic financing and taxation?

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  • yousafhaque
    Nov 7, 2013 - 5:08AM

    If someone entered the city premises with his goods,without paying the octroi charges (when octroi tax was applicable within municipal limits),he had to pay an amount equivalent to 11 times of the original charges,if caught.Now,the government is receiving only the stolen tax amount and that too in installments.What about the public’s tax money spent on finding out the fraud that was being committed,and what about other such fraud cases going un-noticed,which again are in billions.And then we run towards IMF with the begging bowl in our hands with the complaint that our economy is running in a loss

    Recommend

  • SHB
    Nov 7, 2013 - 5:21AM

    Confiscate any property under his and his spouse name.
    Release his name to the public.
    Freeze his assets. Put him behind the bar for next fifty yrs or till he dies, which ever comes first.
    This will teach lesson to other tax dodgers.

    Recommend

  • Pakistani
    Nov 7, 2013 - 5:22AM

    What do you mean you cannot publish the man’s name because his company’s name is listed on the stock exchange? Regardless of that, you should publish the criminal’s name so people can see and then choose if to invest or not in that fraudulent company. Please report the news the proper way.

    Recommend

  • naeem khan Manhattan,Ks
    Nov 7, 2013 - 6:17AM

    ET should not protect these criminals, their names and photographs should be splashed all over the media. Sure, they are returning the money but they must be prosecuted for committing the crime, they should be made an example for the rest of business communities that they will go to jail if they defraud the country by not paying taxes they owe to the treasury. Pakistan will not need any IMF loans and be subservient to other nations and be dictated by them, if these people of means pay their fair share of taxes. Don’t let them get away with just returning the looted money, abide by the laws of the land.

    Recommend

  • imran
    Nov 7, 2013 - 6:27AM

    he’ll be out in 3 days.

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  • Radial
    Nov 7, 2013 - 7:05AM

    The reason stated for withholding the name is idiotic. If it is a publicly listed company, the arrest of its CEO for fraud, and the settlement of 110 million is relevant information that investors should take into account in valuing the shares of this business. An arrest is not the same as a preliminary investigation. An arrest indicates the authorities have sufficient evidence to press charges and initiate criminal proceedings.

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  • Nov 7, 2013 - 7:10AM

    Its not about naming and shaming. The discussion should be on the sytem (SRO) which facilitated this fraud. Our system sets perverse incentives and thus this news came as no surprise.

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  • shafiq
    Nov 7, 2013 - 10:51AM

    Name is Getron polyester…

    Recommend

  • Nov 7, 2013 - 11:39AM

    it is all the more necessary to know the investors anything about the listed company and its promoters/ directors. It is a criminal negligence which may cause losses to the investors in future and they have a right to be informed.

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  • Shahbaz Rana
    Nov 7, 2013 - 1:54PM

    @shafiq:
    Yes
    Asif Bilwani

    Recommend

  • Ishrat salim
    Nov 7, 2013 - 2:51PM

    This is just a tip.of an icebergs…..many more such cases which have been investigated, accused exposed but have never been reported nor arrested….such clandestined cases are worth more than 500 billion Pak Rs…..this is beside the actual tax evasion by the elites etc…no wonder this country is in such a mess….Pakistan ka khuda he hafiz…..

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  • Asim
    Nov 7, 2013 - 3:24PM

    Same family which owns Bonanza

    Recommend

  • Sabine
    Nov 7, 2013 - 4:16PM

    The worst piece of journalism ever. Be a newspaper, be a journalist and name and shame them. If you can’t then dont print the story.

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  • khurram
    Nov 7, 2013 - 6:14PM

    It is Nishat Mills group owned by Mansha .Recommend

  • Salman Ahmed
    Nov 7, 2013 - 6:14PM

    This could also be a potential money making scheme in the government sector where these officials sometimes pick these businessmen late Friday hours so they could be held and tortured to extort money out of them; in which case they end up paying larger sums in bribes to these officials to get released. Recommend

  • kaboom
    Nov 7, 2013 - 6:57PM

    This group always have thrived on special SRO’s in polyester Yarns and in other chemical industries they own. They pay Tens of millions yearly to to FBR people from top to bottom. This time they ran out of luck….Recommend

  • just a suggestion
    Nov 7, 2013 - 7:07PM

    Great work!

    Now I’d also like to see a Lahori and a Faisalabadi tax-evader being arrested by this federal govt.Recommend

  • kaboom
    Nov 7, 2013 - 7:36PM

    It is NOT Nishat. It is a Karachi based Group.Recommend

  • Iqbal
    Nov 7, 2013 - 9:56PM

    Nov/07

    Executive staff is also fully responsible this 400 Millions purchases.
    FBR’s web published Active Taxpayers List [ATL}
    FBR'”s web recommended Alwyas sale/purchased from Active [person].

    In this case, buyer who made very huge amount of purchases
    FBR staff issued necessary manufacturing licence after visit Factory,
    Aftr checking NTN, bank account references and other document.
    FBR staff must be responsible to isse fake manufacturing licence.

    This buyer regularly, submitted monthly buying details in his monthly Sale tax return.
    In which it is duly mentioned VERY LARGE AMOUNT PURCHASES

    FBR staff failed to take any notice of very large amount transactions made thru documentation.

    As per SRO 1125 of 2011 FBR allowed extra benefit to manufactuering units
    Importers and manufacturers can sale at Zero sale tax to registered manufactuers
    and have to pay 5% sale tax if you sales to un-registered person.

    If a person is on active list at the time of sale/purchasing FBR can not hold responsible
    to sellers party, this is a legal issue. so many similar cases of such transactions are in High courts,

    In past many times representatives of Karachi & Lahore Chambers requested to FBR
    to correct SRO 1125 and do not allow extra benefit to manufacturing units.
    So far FBR staff is only looking their own interest.

    In this subject case, no any Fbr staff is arrested so far,

    . Recommend

  • intellectual
    Nov 8, 2013 - 5:13PM

    @Iqbal: YEA your detailed remarks are very much to the point. If the manufacturer/exporter is on active list as per FBR at the time of sale. FBR CANNOT hold the seller party responsible.
    It is the responsibility of FBR staff to identify fake buyers/purchasers since monthly detailed returns are submitted by all manufacturers/exporters and importers to the FBR.Recommend

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