FBR finds 34 global contracting firms committing tax evasion

ISLAMABAD: The FBR has found 34 cases against international contracting firms alone in the federal capital under jurisdiction of Regional Taxpayer Office (RTO) Islamabad where alleged tax evasion was committed in receipts of $482.6 million during the last five years period.

Official documents of FBR’s Regional Taxpayers Office (RTO) Islamabad exclusively available with The News disclosed on Wednesday that out of total 133 cases against international contracting firms on alleged tax evasion in all over the country, 34 cases have been found alone in RTO Islamabad as massive alleged tax fraud has come on the surface for the period from tax year 2014 to 2018 of last five years period.

“Total receipts declared in returns of 34 cases stood at $54.2 million (Rs7.6 billion) in accordance with tax machinery records in last five years while total receipts as par third party information and established by the FBR through investigation was standing in the range of $482.63 million indicating that rampant tax evasion was continued unabated through different ways and means,” official sources confirmed to The News here on Wednesday.

After finding out massive tax evasion in international contracting firms through execution of multimillion dollar donor funded projects, the FBR has gathered information about 133 such international firms which were executing different projects with the assistance of USAID, DFID, GIZ, CIDA and other bilateral donors. One consultant who works for donor funded projects here in Pakistan told The News that he was considered “innocent” rather stupid when he used to declare his amount full and pay all due taxes accordingly after earning money through consultancies in donor funded projects. The alleged tax evasion is known phenomena and it is good that the FBR has started probing this issue to unearth billion of rupees ongoing tax evasion on per annum basis.

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.

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.

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,nadmissible 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 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.

The investigation establishes this fact that huge business receipts on international contracting firms were set apart at head office through NICRA, untaxed huge tax amounts to expatriate employees without deduction of taxes at source, massive payments to non-residents without tax deductions, non-compliance of withholding regimes and even non-filing of tax returns were commonly used methods to allegedly evade taxes here in Pakistan.