Tax evasion: FBR probing Axact’s foreign assets, transactions

ISLAMABAD:

The Federal Board of Revenue (FBR) has decided to launch an investigation into Axact Pakistan (Pvt) Limited’s assets in foreign countries, including the United Kingdom and the United Arab Emirates, bank accounts, credit card transactions and internet marketing in and outside Pakistan.

FBR’s subsidiary Directorate General Intelligence & Investigation (DG I&I) Inland Revenue has also submitted to the FBR details of Axact’s tax evasion through faulty tax exemptions.

DG I&I Inland Revenue’s report reveals that Axact evaded tax to the tune of Rs420 million during the period from 2009 to 2013. According to the report, Axact Pakistan (Pvt) Limited’s NTN is 269290:3 while its address is C:114:116 Jami Commercial Street, No 13, Phase VII, DHA, Karachi.

Axact Pakistan is a subsidiary of M/s Axact FZLLC, UAE, which has 100% share capital. Axact Pakistan has two
directors – Shoaib Ahmed Shaikh and Ayesha Shoaib Shaikh – who respectively bear NTNs 212389:4 and 214853:5.



The directors, who are also husband and wife, have only one share in the company. The price of one share is mentioned as 10 rupees. The above company started operations in 1997 and was registered in 2006 as a private limited company under the Companies Ordinance 1984. Currently, the company has around 5,200 employees and bank accounts in more than 100 countries.

The document said the company operates in Karachi, Islamabad and Dubai and has eight business units and products. The company has more than 8.3million customers around the globe. Axact submitted all the income tax returns from 2009 to 2012 on January 9, 2014.

The company showed its total income from 2009 to 2013 as Rs436,363,626 in which Rs4,29,95,444 were shown exempted from tax while Rs1,33,68,180 were shown as the taxable income.

The document reveals that 97% of the company’s income during the period has been presented as exempted from tax and only three per cent of the income is shown as taxable one which Rs46,78,594 is paid as tax. Against this tax, Axact Pakistan during the period claimed refund of Rs2,79,71,059.

To get tax exemption under Income Tax Ordinance’s Section 133 one has to meet the set criteria and conditions. However, Axact has only partially complied with the Chapter XII Part 12 of State Bank of Pakistan’s Foreign Exchange Manual.

It said that either the company’s IT products, which are offered for sale in Pakistan, are being concealed or misdeclared as export.

The company’s prime business activity is sale of internet, online marketing and downloadable IT products, which is quite different from software export. However, the details provided by the company are contradictory to its core business activities.

An investigation of the record reveals that one of the Axact’ director Shoaib Ahmed Shaikh is also 97% shareholder of M/s Bol Enterprise (Pvt) Limited (NTN 4134669:6). Shaikh has invested Rs6,79,00,000 in Bol, which got registered with tax department on March 19, 2013.

The company from tax years 2009 to 2013 spent a total of Rs49, 62, 53, 259 on marketing, sale and promotion. The company’s directors did not file income tax returns in 2011 and 2012 while they submitted only partial returns in 2013.

The document also revealed that heavy payments were made on Axact’s Standard Chartered accounts through credit cards. These transactions are being probed to find their purpose and beneficiaries.

It said the company is running a huge marketing campaign; however, the company’s income generated in Pakistan is not very impressive. The report said Axact has understated its income.

The preliminary probe of Axact’s bank accounts’ statements reveals that apart from monetary transfers, the company has also received millions of rupees from M/s Axact FZLLC, United Arab Emirates (UAE).

In the tax year, 2012 Axact Pakistan received Rs15, 66, 74,000 while in the tax year 2013 it got Rs67,22, 98,000 from M/s Axact FZLLC, UAE. The report recommends a comprehensive probe into the company’s financial dealings.


Published in The Express Tribune, May 21^st, 2015.