Fake deals: Textile tycoon arrested for Rs110 million tax fraud

FBR’s intelligence arm uncovers a racket to avoid sales tax.

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 7^th, 2013.

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