LTU Karachi unearths Rs1bn tax evasion by fake manufacturer

KARACHI: Large Taxpayers Unit (LTU) Karachi has unearthed tax evasion of Rs1 billion by a fake company, registered as a manufacturer and availed of benefits of reduced sales tax and income tax for the last several years, sources said on Saturday.

The LTU Karachi, the biggest arm of the Federal Board of Revenue (FBR) and having jurisdiction over large-sized volume companies, for the first time conducted a raid against the taxpayer and seized all documents, including computers and other electronic accessories.

An official on the condition of anonymity said the company was registered as a manufacturer for the last many years, engaging in import of raw materials and availed of 8.5 percent concessions, including three percent sales tax and 5.5 percent advance income tax.

“The preliminary scrutiny revealed the company was engaged in importing around Rs2.5 billion annually and evading taxes of Rs200 million each year,” the official said, adding that the FBR is conducting examination of imports by the company during the last five years. “It is estimated that the company evaded Rs1 billion during the last five years,” the official added. Under the sales tax laws, a company is only allowed registration after thorough physical examination, he said.

“The company at the time of registration had shown installed machinery for production,” the official said, adding that it was discovered in the latest raid that the company had removed the machinery and there was nothing at its business premises.

The utility providers, including K-Electric and Sui Southern Gas Company (SSGC) would be asked to charge normal sales tax rate on billing to the company. 

The sources said such company was identified under fresh verification of the existing registered manufacturers by the FBR in order to prevent revenue leakages and remove bogus and fake companies. They said it was a unique case in the history of the LTU Karachi because all the companies registered with the unit were mostly compliant taxpayers and have good reputation. However, thousands of companies registered with the Regional Tax Offices (RTOs) were found fake, which were subsequently either suspended or blacklisted, the official added.