ISLAMABAD: An internal audit of the Federal Board of Revenue (FBR) had unveiled a massive scam worth billions in withholding tax regime.
Director-general (DG) of Internal Audit has written a letter to the member of Inland Revenue regarding scams in withholding tax regime as huge purchases of goods and services have been carried from “fictitious persons” in a number of cases.
The letter said that many taxpayers in order to show reduced profits, pay less tax or claim illegal refunds falsify purchase orders and bills and show huge purchases of goods and services from bogus and fictitious persons.
“These withholdees (suppliers) do not file tax returns, and the tax shown as deducted from these is not deposited into the Treasury. Thus, revenue loss is caused in three ways such as withholding agents show the reduced profit, no tax/minimum tax paid by the fictious withholdee (supplier), and non-deposit of withheld amount.”
The letter stated said this is similar to the method of fake invoices in case of sales tax but the volume is much bigger.
According to the letter, withholding agents have made dubious purchases of goods and services worth Rs4,193.687 billion in the last five years, on which tax liability of Rs1,258 billion (at an average rate of 30pc income tax) could have been evaded.
The scrutiny of the data revealed many discrepancies which substantiate the view that these are fake persons and acquisitions being used to show huge purchases of goods and services and thereby reduce the withholding agents’ profit and tax liability.”
The DG suggested that data may be shared with real-time operating systems (RTOs) and they be directed to conduct verification of the existence of the withholders, and to enforce their income tax returns along with payment of minimum tax and sales tax, wherever applicable.
He also suggested that RTOs should confirm whether the tax shown as deducted/withheld from these withholders has been deposited in the treasury. If not, legal action under relevant provisions should be taken against them to recover the amount.
