FBR weaknesses hinder recovery of fake refunds

KARACHI: The government’s efforts to address chronic tax evasion issues may fall short of targets on indecisiveness of tax officials as they failed to penalize hundreds of suspended firms guilty of tax fraud, sources said on Thursday.
“As per law tax offices have to decide cases of suspended units (blacklisted or cleared in a time period of 90 days),” said a senior official at the Regional Tax Office (RTO) Karachi.
The commissioner of Inland Revenue, according to the tax law, can suspend sales tax registration of a firm on sufficient evidences that the unit has issued fake invoices, evaded tax or committed tax fraud. The tax authority is also not bond to issue a notice to the suspected firm before taking an action.
The official claimed that thousands of units had been suspended in recent past but the tax officials have not taking any action. “The suspension of such firms has even exceeded the mandatory three-month period where billions of rupees had been issued as refunds on bogus invoices,” the official said.
Quoting the example of M/s. Star Impex and M/s. Sunny International, registered with RTO-I and RTO-III Karachi, the official said the FBR database showed status of both the companies are under suspension since September 2012 and September 2014, respectively.
The official said sales tax refund pai yers against bogus invoices issued through suspended companies could not be recovered until tax offices blacklist them. The FBR on June 30, 2012 issued Sales Tax General Order No. 35/2012 for blacklisting and suspension of registration, asking Large Taxpayers Units (LTUs) and RTOs to follow a uniform policy.
The STGO has made a commission responsible to issue show cause to a suspended unit and also offered an opportunity of hearing within 15 days with a warning that the unit would be blacklisted in case: “there is no response to the notice; has not provided the required record; has not allowed access to his business record/premises.”
“In case show cause notice is not issued within seven days of the order of suspension, the order of suspension shall become void ab initio,” the order said. “The order of blacklisting shall be issued within 90 days of the issuance of the notice of hearing. In case, the order of blacklisting is not issued within this time period the suspension of registered person shall become void ab initio,” it added.
The official said hundreds of companies are under suspension but the tax departments failed to pursue cases against them. “The delay in initiating the process indicate inefficiency of field formation or their mala fide intention of protecting such registered taxpayers who had swindled billions of rupees of refunds on bogus invoices, issued by the suspended units,” the official added.
It is worth mention that Rs40 billion sales tax refund scam was unearthed by RTOs Karachi in recent past. The department in July 2013 blacklisted or suspended around 4,000 companies. Though FBR had taken disciplinary action against tax officials involved in the scam, no recovery had been made yet.