Islamabad: A government tax probe has identified 39 textile and spinning mills involved in fake business transactions, causing nearly one billion rupee loss to the national kitty, officials say.
Two senior officials at the Federal Board of Revenue (FBR) and Income Tax Department, on condition of anonymity, shared details with News Lens Pakistan about the tax scam.
“The companies operate in textile and spinning sector and facilitate fraudulent business transactions,” a tax official said, refusing to share names of the companies because it would affect the investigation process.
The Income Tax Office’s Intelligence official said the department has communicated the names, sales tax registration numbers and other data to the FBR for action against these mills/companies.
“It is for the first time, any intelligence agency has managed to detect frauds in operative and active companies, amounting to Rs 943, 595, 360,” the Income Tax official revealed.
When contacted FBR, an official only said, “We don’t comment on cases under investigations.”
Dr. Abdul Rashid, expert on economic affairs and associate professor at International Islamic University (IIU), said that tax evasion is rampant in the country because of weak tax culture.
“Tax evasion even by big firms is not possible without officials’ connivance,” he said, adding that the government should have stringent strategy to deal with if any industry or firm doesn’t show profit or register fake losses.
If any individual or firm, he said, doesn’t file income tax returns, a penalty should be awarded as per established rules. There should be reward for any firm or manufacturing company which files return because that kind of trend would encourage others to pay taxes regularly, he suggested.
He said that the government should designate a competent audit firm to conduct audit of any individual, firm or company, which reports losses.
Shah Nawaz, owner of a grocery shop in Islamabad, said common people have to pay direct or indirect taxes. “The officials of the departments’ concerned know, who is evading taxes but they don’t take any action,” he complained.
If big companies start paying regular taxes and filing tax returns, there would no need for the government to impose indirect taxes, which affect end consumers, he remarked.
The development comes at a time when the budget for next fiscal year has been announced last week. Earlier, the government had to impose indirect taxes or mini-budget as well-off people, business tycoons and industrialists evade taxes, News Lens Pakistan had reported.
The weak tax culture leaves negative impact on local as well foreign businesses one way or the other, Dr. Rashid remarked.
Raza Shah, a renowned businessman at the fruit and vegetables market in Islamabad, said that poor segment of society pays taxes while well-off people evade.
“Common perception is that that the government is too weak to bring big business tycoon under tax net,” he remarked. Small traders and people on the street complain end consumers bear the brunt of taxes, he added.
He said the Income Tax department should expose the names of those well-off people and firms before the nation, who evade taxes.
Pakistan Institute of Legislative Development and Transparency (PILDAT) in a report published last year “Tax Reforms in Pakistan” reports that Pakistan has one of the lowest tax-to-GDP ratios in Asia and the country faces serious budget deficits despite levying high indirect taxes which are regressive in nature and impose higher burden on the low income groups disproportionately.
Earlier, an official at the FBR who wished to go unnamed, had told News Lens Pakistan that almost 0.3 percent of Pakistani population files tax return or pay income tax, which he said is one of the lowest globally.
Almost seven million people in the country are eligible to pay income tax, he said.
In Pakistan, the mechanism of tax enforcement is flawed, which gives exemption to ruling class, creating economic and social disparity among the citizens, the PILDAT reports. It stated that non-active taxpayers need to be scrutinized stringently.
The government should not only limit their bank accounts but should also focus on the overall portfolio i.e. assets, business activities, registered and non-registered accounts etc.
“The principle of tax at source should be applied to all the industries, which will generate appropriate sales tax revenue,” it reports.
Official statistics reveal, last year the government had unveiled budget for the fiscal year 2015-16, having a total outlay of over Rs 4.2 trillion. The official at the Income Tax department said that in the past most of the cases of paper transactions involved blacklisted or closed units.
He acknowledged that there were also mega scams where paper transactions were unearthed in the blacklisted or suspended units where recovery of the evaded amount is impossible.
Details revealed that the intelligence directorate on the basis of credible information about transactions of fake and flying invoices by sales tax registered persons initiated investigation in the cases.
“The inquiry reveals that these registered persons are involved in paper/fake transactions. They have facilitated a number of fraudulent transactions as mentioned in the annex,” he added.
The registered persons have transacted bogus supplies and invoice value, he said, adding that sales tax is liable to be charged on the said invoice/values.
He said that detailed reports have been forwarded to respective Regional Tax Officers (RTOs) for making assessment of the Sales Tax Act, 1990 against the registered persons and their beneficiaries to recover the defrauded amount of tax along with default surcharge and penalty.
Dr. Shuja-ul-Mulk, economic analyst and assistant professor, said that tax fraud or evasion leaves far-reaching negative impact on national exchequer. “Tax evasion directly decreases government income,” he said, adding the government has to borrow or impose mini-budget to meet deficit and expenditures.
“When people evade taxes it decreases income but expenditures remain the same. In this situation, the government debt servicing increases, which negatively impact national kitty,” he noted.
