Bogus refunds

In a rightful move, the Federal Tax Ombudsman (FTO) has taken exception to bogus tax refunds by Federal Board of Revenue officials. The FTO has directed the FBR to initiate action against the culprits involved in this malpractice. According to reports, some fake persons have been using fraudulent means to claim tax refunds, and they are facilitated by their complicit officials in the FBR. The facilitators gloss over the details and process such bogus tax refund claims that are duly sanctioned without proper scrutiny. In October 2019, the corporate regional tax office (CRTO) in Karachi had established a monitoring cell to identify taxpayers involved in fake and flying invoices. The CRTO did it keeping in view the declining trend in sales tax payments, especially during the first quarter of the current fiscal year. In early December 2019, multiple cases of fake and flying sales tax invoices came to light in Faisalabad after the withdrawal of sales tax zero-rating facility from textile sector since July 2019.

The intelligence and investigation directorate in Faisalabad had investigated a tax fraud scam against a gang of sales tax fraudsters involving over two dozen spinning mills and furnished fabrics traders. They had allegedly used nine bank accounts for transactions of over Rs1.5 billion. They were reported to have registered six businesses using the same name. Then, in the last week of December 2019, the FTO had taken up a suo-motu case against the sanctioning of millions of rupees bogus sales tax refunds. The FTO had reviewed a report based on the investigation by the directorate general of the FBR which had revealed that just one of the companies had obtained illegal refunds of sales tax amounting to over Rs46 million. Other companies involved in this scam had pocketed various amounts ranging from five to 10 million rupees each. Then in the last week of January, a regional tax office (RTO) in Karachi initiated criminal proceedings against the culprits involved in obtaining sales tax refunds on fake and flying invoices.

The tax officers had also unearthed a gang of fraudsters engaged in tax fraud and claimed over Rs230 million sales tax refunds. Now that the Federal Tax Ombudsman has taken note of this malpractice, the FBR must put its house in order; though in the absence of a full-time FBR chairperson, it will be a challenging task. The incumbent chairman of the FBR has gone on leave for the second time within a month. Apparently his health issues have become a hurdle in his way. Since the FBR is the backbone of revenue in the country, perhaps a new head of the entity is a possible solution.