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January 21, 2014
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Paper units blacklisted for claiming fake refunds

January 21, 2014

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KARACHI: The Federal Board of Revenue (FBR) has blacklisted the sales tax registration of around 25 units in paper / packaging industry for obtaining refunds on fake invoices, official sources said on Monday.
The officials said that all the companies were registered with the Regional Tax Office (RTO) Karachi and had claimed around Rs870 million during the tax year 2012-13.
The RTO released around Rs600 million to the claimants after preliminary verification, a tax official said on the condition of anonymity.
However, the post-refund audit detected discrepancies in their transactions, especially purchases made from their clients, the official said. The role of the revenue body officials was also suspicious in issuing such huge amounts without proper scrutiny, the official said.
The directorate of intelligence also discharged their responsibilities by issuing red alerts in these cases, instead of lodging FIR against the culprits, he said.
Another tax official said that the real problems were within the output stage where the manufacturers purchase raw material (scrap paper) from mostly unregistered sector.
The official said that in the order to reduce their sales tax liability, the manufacturers declare less volume, which was estimated to be 20 percent. Around 80 percent of the manufactured paper was concealed, as manufacturers were unable to get input adjustment from their unregistered sellers.
At a later stage, the tax official said, the persons in packaging industry purchased 20 percent documented products and for 80 percent they compelled to purchase fake invoices for claiming inputs, while making supplies to the export sector.
The official said that at this stage several other fake companies, who got sales tax registrations, managed to obtain refund claims on the basis of transactions. In the past, tax offices had demanded to invoke Section 40B of the Sales Tax Act, 1990 but were denied by the FBR authorities.
The Section 40B of the

act describes about the posting of an Inland Revenue Officer and said: “Subject to such conditions and restrictions, as deemed fit to impose, the board, may post an officer of the Inland Revenue to the premises of registered person or class of such persons to monitor production, sale of taxable goods and the stock position provided that if a commissioner, on the basis of material evidence, has reason to believe that a registered person is involved in evasion of sales tax or tax fraud, he may, by recording the reason in writing, post an officer of the Inland Revenue to the premises of such registered person to monitor production or sale of taxable goods and the stocks position.”
The official said that exercising the section will help reduce refund claims on fake invoices.
In the present case where 25 companies had been suspended, most of them are involved in printing of exercise notebooks.
The tax officials said that if worked back the combined claims of Rs870 million on the basis of 16 percent sales tax and 25 percent cost, the real value will become Rs5.23 billion.
The officials said that presently the companies were blacklisted but no concrete measures had been taken for recovery. At a meeting last week, the FBR chairman directed the chief commissioners of tax offices located in Karachi to ensure
recovery of refunds against fake invoices.
On the other hand, the business community is also worried about fake invoices and issuance of refunds on those documents, saying that the genuine refunds had been stuck up due to this.
The business community identified measures that the FBR should implement to stop fake and flying invoices. “There should be uniform rate in taxes,” said Muhammad Saleem Memon, chairman of the Paper Merchants Association.
The prevailing different rates in sales tax had invited fake invoices, he said, adding that the sector is de-organised and the FBR should also take measures to organise the local manufacturers.

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