Prevention of frauds, fake input adjustment

KARACHI: The Federal Board of Revenue (FBR) is likely to propose significant changes to the sales tax regime in the Federal Budget 2015/16 to prevent fake refunds and claims of input adjustment, sources said on Thursday.
Sources in the revenue authority said tax managers have proposed several changes to the Sales Tax Act, 1990, considering fake refunds and claims of input adjustment on flying invoices that cost billions of rupees to the national exchequer.
One of the amendments proposed to Section 23 of the act, relating to tax invoices, the sources said, adding, it is suggested that no sales tax refund should be allowed unless the registered persons had presented the invoice, or bill of entry, or treasury receipt, along with the claim and evidence that the input tax with relation to the claim had been paid to the credit of the government.
An amount of Rs40 billion have been lost alone in the Regional Tax Offices (RTOs) in Karachi on account of fake refund claims and input adjustment on fake and flying invoices, they said.
The claims against such refunds were presented and received by fake entities and had not any physical existence.
The FBR officials believed such proposed amendment would create deterrence against the existence of fake companies.
Presently, the sources said, a tax invoice required details of a person, including name, address and registration number of the supplier. Likewise the name, address and registration number of the recipient are also required for tax invoice.
The sources said the FBR may also propose changes to Section 10 of the Sales Tax Act, 1990, empowering commissioner Inland Revenue to withhold the refund claim of a taxpayer, which is not admissible.
The FBR may seek that the commissioner should be empowered to initiate investigation and inquiry proceedings in the matter.
The proposal would seek the investigation should be completed in four months, which can be extended to further 90 days.
Another amendment sought in Section 22 of the Sales Tax Act regarding obtaining or accessing the electronic data of a taxpayer to verify sales and purchases, the sources said.
They said the FBR may recommend a new sub-section 5 where a person who is required to maintain any record or documents will produce record or documents as required by the commissioner Inland Revenue, which is in taxpayer’s possession or in possession of his agent.
“Where such record of documents have been kept on electronic data, he (taxpayer) shall allow access to the officer of the Inland Revenue authorised by the commissioner and use of any machine on which such data is kept,” according to the proposals likely to be presented by the FBR for the budget.