Different sectors involved in sales tax evasion worth Rs3.4 trillion: Aurangzeb

Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb on Thursday highlighted a massive sales tax evasion worth Rs3.4 trillion out of a total Rs7 trillion tax theft in different sectors of the economy.

Aurangzeb was addressing a press conference along with the Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial to discuss a study conducted by FBR on sales tax evasion.

The study found that only 14% out of 300,000 manufacturers liable to register have done so, and many registered entities misreport turnover, claim excess input tax, and use fake invoices.

Sales Tax in Pakistan is collected through VAT mode, relying on businesses to collect tax from buyers. However, this trust has been breached on a massive scale, the minister said and shared findings from five sectors including iron and steel, cement, beverages, batteries, and textile.

He said malpractices were widespread, with most entities claiming excess input tax.

In the iron and steel sector, 33 large businesses, representing over 50% of total sales, evaded sales tax by claiming Rs29 billion in excess input tax, mainly through scrap metal and coal purchases.

Likewise, in the battery sector, six active cases, representing 99% of total sales, claimed Rs11 billion in excess input tax, primarily through lead purchases while in the cement sector, 19 active cases claimed Rs18 billion in excess input tax in FY23-24, mainly through coal purchases.

In addition, the beverages sector with 16 active cases, representing 99% of aerated water sales, claimed Rs15 billion in excess input tax, mainly through sugar, plastics, and services purchases.

In the textile sector, with 228 active cases claimed Rs169 billion in excess input tax, mainly through services, chemicals, coal, and packaging purchases.

Detailing steps to combat tax evasion, the finance czar said that the government has intensified enforcement measures, including arrests and criminal cases, resulting in a significant decrease in fake input tax claims in FY23-24.

However, massive evasion persists, and more measures are being planned to curb it.

He said that the apex taxation body has identified evidence of tax fraud in various sectors, including 11 battery sector cases, 897 iron & steel sector cases, and 253 beneficiaries of fake input claims on coal purchases.

Those involved face arrest and imprisonment of up to 10 years, heavy penalties, and fines.

On the occasion, the FBR chairman emphasised that input tax adjustment fraud was a serious issue, warning CFOs to refrain from signing incorrect returns, especially before the October 15 deadline. Those involved in tax evasion will face consequences.