Bogus company evades Rs14bn taxes through fake transactions

ISLAMABAD: A glaring example of tax fraud that occurred through alleged manipulation and breach of taxpayer data security has caused whopping fake transactions of Rs84 billion and resulted in tax evasion of Rs14 billion within just a few months.

Official records and background interviews disclosed that on the complaint of a retired army officer, the Federal Tax Ombudsman (FTO) conducted a thorough probe and found a glaring case of organised tax fraud with the active connivance of Federal Board of Revenue (FBR)’s IT guards.

During the investigation of a complaint, it was found that a company in Zone-III, RTO-II, Karachi Annexure C, filed sales tax returns for tax periods September 2023 to January 2024 which reflected bogus supplies of Rs81.434 billion having GST of Rs14.658 billion. Subsequently, a huge input tax was claimed by various buyers against those fake supplies during the same tax periods. The Sales Tax Registration Number (STRN) was summarily blacklisted ex-parte without conducting an inquiry against imposter/ fraudster/ cyber-criminals misusing the ID of the complainant.

When the FBR and PRAL officials were summoned, they failed to furnish copies of Annex C as prescribed under STR-7 [Annex-C-domestic Sales Invoices. Even the Pakistan Revenue Authority Limited (PRAL), a subsidiary of the FBR for IT solutions, admitted the non-availability of Annexure C. When more in-depth investigation was done, it was found that there were alleged forward and backward transactions leading toward alleged beneficiaries of organised tax fraud. At the end of the tunnel, either a refund was received or adjusted by a manufacturer at multiple Inland Revenue field formations i.e. Regional Taxpayer Office (RTO)-1 Karachi, RTO-II Karachi, Large Taxpayer Office (LTO) Lahore, Corporate Tax Office (CTO) Lahore, RTO Lahore, and RTO Faisalabad.

The alleged fraudsters introduced Rs1.625 trillion of fake supplies in the supply chain by misusing the sales tax account of a 79 years old lady living abroad and filing nil sales tax return. The checks and balances against fake transactions incorporated in the web portal through Rule 18(5) of Sales Tax Rules 2006 were disabled/ deactivated, resulting in loss of government revenue.

“The investigation reveals this tax fraud has been conducted by a gang of cybercriminals facilitated by the employees (present and/ or past) of PRAL & FBR who have direct or indirect access to the whole computerised system,” the investigation revealed.

This gang operated in networks, initially spotted and extracted the sales tax registered dormant persons from the FBR website and used their password for bogus/ fake transactions to benefit end consumers/ manufacturers.

Further details showed that the complaint was filed against the Commissioner Zone-III, RTO-II Karachi in terms of Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) for accusing the complainant of alleged ‘Tax Fraud’ declaring transaction of Rs81.434 billion with the impact of GST amounting to Rs14.658 billion against ‘Null’ sales tax returns filed for tax periods September 2023 to January 2024 and consequent illegal blacklisting of Sales Tax Registration Number (STRN) of the complainant by the commissioner vide order dated 27.03.2024.

The complainant got himself registered in sales tax on 20.08.2010 under a business. As per the complaint, the Commissioner Zone-III, RTO-II, Karachi, vide an ex-parte order dated 27.03.2024 blacklisted the Sales Tax Registration (STRN) of the complainant due to filing of Annexure C of sales tax returns for tax periods September 2023 to January 2024 and declaring bogus supplies of Rs81.434 billion having GST of Rs14.658 billion.

The complainant further alleged that the STRN was blacklisted without proper service of any show cause notice or suspension order. The pre-suspension notice, suspension order, and notice were either received after the due date through UMS or not received at all to date; hence this complaint is for conducting an inquiry against imposter/ fraudster/ cyber-criminals misusing the ID of the complainant and a directive to the COMMISSIONER for cancellation of the blacklisting order and all other subsequent proceedings.

In response to the complaint, the Revenue Division submitted an Excel sheet of Annexure C for tax periods September 2023 to January 2024 and revealed that huge fake supplies declared through ‘Annexure C’ by the complainant and subsequently huge input tax claimed by various buyers against those fake supplies during the said tax periods. However, the FBR and PRAL failed to furnish copies of Annexure C.

The FTO has instructed the FBR to direct the chief commissioner-IR, LTO Lahore to ensure the initiation of legal proceedings for conviction on merit by the law against the crime of tax fraud committed by alleged persons.