FBR investigating irreconcilable amount of Rs40 bn tax collection

ISLAMABAD: The FBR’s Inland Revenue Service (IRS) authorities in Karachi are looking into an apparently irreconcilable amount of over Rs40 billion, relating to the Goods Declarations (GDs) filed & cleared at import stage but the taxes collected from them are hitherto untraceable.

During this exercise it has been observed that since February, 2013 Customs authorities have been maintaining allegedly a parallel collection mechanism through a series of Pre-Deposit Account (PD A/Cs). 

Surprisingly this extra legal mechanism has been developed, enforced and managed without prior permission of Finance Division and without taking Inland Revenue Wing of FBR on board.  It is suspected that under this arrangement Customs wing is in a "position to manage taxes collected at import stage in way it suits their interest". 

The IRS authorities are perplexed as to how and why this intervention has been launched without taking the major stakeholder on board.  They suspect that through this black hole, taxes collected at import stage are being diverted unilaterally and this is being done in complete violation of financial regulations relating to opening & maintenance of Government Accounts.

The initial investigations reveal that this glaring discrepancy owes its origins to some top guns, holding very important charges during 2013-2017. The present Customs management is either at sea to fix responsibility on those who played key role in devising such a mechanism or they are just blindly following the lopsided scheme because it is beneficial to them. 

The episode surfaced during the current fiscal year when at 02 consecutive Chief Commissioners Conferences IR field formations were admonished by the ex-chairman FBR Nisar Mohammad Khan for continuous downslide in income tax and sales tax at import stage. 

He was of the view that excessive issuance of exemption certificates by IR formations and expansion in zero-rated regime are the two cardinal reasons. He appreciated the prudent policies of Customs wing and pointed out that this is why revenue collection on customs duty was showing impressive growth while the collection nosedived in general sales tax (GST), federal excise duty (FED) and with holding tax (WHT) regimes. 

On rechecking however, the IR investigators unearthed the above referred black hole whereby parallel tax regime by using unrecognised bank accounts and complex financial transactions, Sales Tax and Income Tax collected at import stage is being diverted elsewhere and finally being parked under misclassified heads.

According to the implied modus operandi, each Collectorate maintains a PD A/C in the name of Collector concerned. This dedicated bank account is used by all such clearing agents who opt for making online payments for the clearance under Weboc. This account is linked with and facilitates individual sub account of the agents for the purpose of all payment made by the agents against the Duty/ Tax payable. Thus online payments are directly credited in the said PD Account. 

Data collected by IR investigators reveals that during July 2016 to Feb 2017, at Karachi an amount of over Rs109 billion, at Lahore over Rs4 billion and at Islamabad over Rs1.6 billion had been credited to the PD Accounts. 

The bank account statements of the aforesaid PD Accounts obtained by IR investigators reveal that apparently the PD account is being used for parking the total amount of duty and taxes paid online by clearing agents. This credited amounts are being managed in a way that Customs revenues reflect a rosy picture whereas collection IR taxes show negative trends. For instance in March 2016 an at MCC Islamabad an amount of Rs500 million was diverted from PD A/C to Collector Customs General A/C without any head wise bifurcation/segregation. Similarly on September 20 and 21, 2016 a hefty amount of Rs 600 million was transferred from PD A/C to State Bank of Pakistan without any bifurcation of head wise taxes share.

Thus under this parallel tax collection regime through a maze of bank accounts and complex blackend financial transactions, Sales Tax/Income Tax collected at import stage is not remitted in time to IR Wing rather it is made part of individual pool which is easily manageable for the controlling department.

Reportedly Corporate RTO Karachi has obtained complete bank account statement of all PD Accounts being maintained by Customs Collectorates throughout Pakistan. Complete reconciliation from the date of opening of these PD accounts with the launching of Weboc to date is being conducted so as to ascertain that all relevant tax heads have been properly credited the amount due against these. So far an amount of over Rs40 billion is to be reconciled. 

This parallel mechanism of tax collection managed through PD Accounts also needs to be reviewed in detail because taxes collected under different heads are not visible to the concerned IR field formations as they were held accountable for the declining revenue at a time when no full information was available about the black hole. 

In the aftermath of this alarming scenario, there is need to find out a workable solution as currently Customs’ Weboc and Iris softwares are not linked with each other. It is proposed that Weboc may be linked with Iris so as to ensure that GST and Income Tax collected at import stage are timely visible to the IR formations and are finally credited to the respective heads without any delays and in a transparent manner.

FBR’s official spokesman Dr Iqbal showed his unawareness about ongoing probe by IR authorities at Karachi and said that the government reduced tax rates for GST and WHT at import stage so it caused reduced tax collection.

This correspondent also made efforts to contact former Chairman FBR Nisar Mohammad Khan for seeking comments for last several days but his cell was found switched off.