FBR begins on-site inspection to check misuse of concessions

KARACHI: The Federal Board of Revenue (FBR) has commenced verification of business premises of manufacturers across the country to prevent misuse of tax concessionary regime granted to exports sector, sources said on Saturday.

The sources in the Corporate Regional Tax Office (CRTO) told The News that the inspection was launched on discovery of a massive misuse of the facility under a statutory regulatory order (SRO 1125(I)/2019) and on the directives of the Federal Tax Ombudsman (FTO).

An official at the CRTO confirmed that re-verification of business premises of all the manufacturers registered under sales tax law kicked off and officials of Inland Revenue are visiting the premises to complete all the formalities, including the global positioning system- (GPS) tagging to verify the business activities.

In 2011, the government introduced the SRO (1125(I)/2011) to allow a concessionary regime to export sector and manufacturers to make exports of the country competitive in the world.

The zero-rated of sales tax has also been granted to textile and other export sectors under the SRO.

An entity is required to get sales tax registration by providing mandatory documents of business activities to avail the concessions.

The FBR issued revised sales tax registration rules through SRO (494()/2015) in June 2015 under which certain checks were put in place for manufacturers, requiring GPS-tagged photographs of factory premises and details of industrial electricity and gas meters.

Though revised procedures are issued the Inland Revenue offices failed to revalidate the authenticity of manufacturers and several fake manufacturers availed the incentives and incurred billions of rupee losses to national exchequer.

The FBR estimates that around 100,000 entities are registered with the sales tax, but only 38,000 are filing their sales tax returns on monthly basis.

The FTO found serious lapses in sales tax registration system and its misuse by culprits. The FTO in its judgment last week said the risk parameters employed in the registration process led to misuse of manufacturers’ status by registered individuals for the purpose of tax evasion.

“The FBR failed to take timely action in integrating the registration module in

IRIS system, thereby providing opportunity to the unscrupulous elements to take advantage to the weaknesses in the registration procedure of the sales tax department.”

The FTO asked the FBR to “arrange audit of all manufacturers who availed the benefit of SRO (1125(I)/2011) to find out whether manufacturer status was granted after fulfillment of requisite conditions and in case of irregular approvals of manufacturer status, fix responsibility on the dealing staff for proceedings under rules and take necessary measures for recovery of losses caused to government revenue.”

In 2014, the RTO Karachi blacklisted or suspended more than 4,000 companies for having fake addresses and issuing flying invoices. The companies were blacklisted after huge loss of Rs40 billion to the exchequer.