FBR launches audit of fertiliser businesses to plug tax leakages

KARACHI: The Federal Board of Revenue (FBR) has launched a composite audit of fertiliser manufacturers after unearthing various incidences of sales suppression in the growing sector, sources said on Tuesday.

The sources said various fertiliser companies were found to have evaded sales and income taxes. Tax leakages have been identified on supplies made to unregistered distributors, they said.

Recently a meeting was held at the FBR headquarters to discuss underreporting of production in the fertiliser sector and the chief commissioners of large taxpayers offices and corporate tax offices were directed to launch the composite audit, according the sources.

The FBR issued a timeline for the tax offices to complete the audit in phases. Under the audit exercise, the tax offices will complete desk audit by February and that will be done on the basis of third party information.

On the outcome of the desk audit, the chief commissioners of Inland Revenue were asked to select fertiliser companies for composite audit under Income Tax Ordinance 2001 and Sales Tax Act 1990. The tax offices will complete the audit and submit reports to the FBR headquarters by April 15, according the sources.

The sources said the tax offices will then issue show cause notices in May on the basis of detection of concealment or evasion to fertiliser companies. The tax offices have also been asked to issue a final recovery order by June 25 and finalise the recovery process by the end of the current fiscal year.

The sources said the FBR is also planning to launch the composite audit of the cement sector and instructions will also be issued in coming days.

The FBR made a major breakthrough in audit of sugar sector. The Large Taxpayers Office Karachi alone created a tax demand of Rs200 billion in income tax audit against sugar companies.

The audit of the fertiliser sector will be done on the pattern of audit conducted in the sugar sector to identify quantum of tax leakages in manufacturing and supplies, the sources said.

The tax authorities are examining fertiliser companies before making mandatory the installation of track and trace systems.

The FBR recently introduced the track and trace system to identify leakages of federal taxes and under reporting of production and sales in major sectors, including tobacco, cement and sugar and to ensure proper payment of duties and taxes on the manufacture and sales of the goods.