FBR to audit 133 international firms on massive tax evasion

ISLAMABAD: The Federal Board of Revenue (FBR) has identified 133 international contracting firms operating in Pakistan for the purpose of scrutinising their accounts to find out potential tax evasion of worth billions of rupees under donors funded projects.

Top official sources in the FBR confirmed to The News on Tuesday that Regional Taxpayer Office (RTO) Islamabad received detailed investigation report about one international contracting firm with the directive for immediate enforcement of complete annual statements for last five years and selection of company’s case for audit purposes.

After finding out massive tax evasion in international contracting firms through execution of multimillion dollar donor funded projects, the FBR has now gathered information about 133 such international firms which were executing different projects with the assistance of USAID, DFID, GIZ, CIDA and other bilateral donors.

“Keeping in view pattern of massive tax evasion through international contracting firms, the FBR is expecting to raise multibillion rupees demands through this ongoing exercise for the purpose of broadening of narrowed tax base,” said the official sources. The official said that the FBR could generate billions of rupees taxes from these high net worth value cases as these are potential areas for netting the due taxes instead of focusing upon minor cases.

One federal secretary told The News that the European Union (EU) was raising launching complaints about non-availability of tax exemption on services as it had transferred to provinces and their respective provincial tax authorities were not granting exemption from GST on services under their jurisdictions.

Under the existing tax laws, the money provided to these bilateral donor agencies are exempted from taxes but after outsourcing projects to third parties it becomes liable to pay taxes. Most of these international contracting firms hired top officials in their respective organisations from their native respective countries and after residing here for over six months these foreign nationals become eligible to pay taxes on their salaries and other perks and privileges.

One representative of an INGO whose registration was canceled recently told The News that they were fully compliant and paid millions of rupees into FBR kitty but the government canceled their registration despite this fact that they were fully compliant and deducting all kinds of taxes under the law of the land.

Its first time in the country’s history that the FBR disclosed mechanism through its investigation that how aid money of millions of dollars went back into pockets of donors and their attached international contractors.

At a time when the FBR is facing massive tax shortfall of over Rs100 billion in first five months of the current fiscal and the government is considering for introducing mini budget before the Parliament next month, the international contractors are allegedly found involved in tax evasion through huge payment to expatriate employees without tax deduction at source, inadmissible head office expenses and non-compliance of withholding tax regime in Pakistan thus evading billions of rupees due taxes.

The FBR found that such entities set aside huge amount of aid money for its headquarters in their respective headquarters in their homelands under head of “Negotiated Indirect Cost Rate Agreement (NICRA).

Pakistani tax officials argued that this ratio should not be more than 8 percent but in these cases it stood at more than 29 percent and tax officials termed it as high in a bid to evade the taxes here in Pakistan.