Is FBR Incompetent or Completely Sold Out?

For a long time in government circles, there have been whispers of telecom companies under reporting their revenues or even worse not submitting taxes to the government that they collect from consumers.

There is however no proof available as government or PTA do not have the ability to track the way mobile companies bill their customers.

Call it bad planning on government’s part as they didn’t define protocols before hand and failed to envision the situation when telecom sector was deregulated.

About two years ago, Federal Board of Revenue (FBR) — for the first time — decided to conduct forensic audit of telecom companies to scrutinize tax collection and financial statements submitted by them and ensure realization of potential revenue and plug any possible loopholes and leakages.

However, some hidden and influential hands are using delaying tactics to hinder forensic audit of telecom operators, which is raising question marks on whether telecom companies are under reporting their revenues and if taxes collected from customers is indeed submitted to the government or not.

It must be mentioned here that the delay in forensic audit suggests that either FBR is incompetent or they are sold out.

The issue of audit of telecom companies was first discussed at a meeting held in 2014 which was attended, among others, by chairmen of FBR, Sindh Board of Revenue, Punjab Revenue Board and Secretary Khyber Pakhtunkhawa Excise & Taxation Department and officials of Khyber Pakhtunkhwa Revenue Authority.

Highlighting the issues pertaining to declarations made by telecom companies in their returns, FBR chief suggested that to ensure realization of potential revenue, a combined forensic audit of telecom companies, on behalf of all revenue agencies, be conducted to plug loopholes and leakages.

All the participants of the meeting had then agreed to the proposal. It was also agreed in the meeting that such audit would also cover the payment of income tax by the telecom companies.

A committee, comprising representatives of each agency as well as PTA was constituted for submitting a report in this regard. The committee to be headed by chief commissioner of Large Taxpayer Unit (LTU), Islamabad, was assigned the task of formulating its report keeping in view the following aspects.

With respect to the forensic audit, the committee would

  • (a) prepare terms of reference (TORs), and
  • (b) suggest legal provisions to be included in relevant laws, enabling conducting of such audit, if such provisions did not exist, at present.

Participants of the meeting also had agreed to conduct joint forensic audit of the telecom companies to check their exact sales tax/federal excise duty and income tax payments.

The FBR, SBoR, PRA and KPRA were asked to facilitate engaging third party vendors for conducting joint forensic audit of the telecom companies.

Such a move had been necessitated in the wake of reports that telecom sector has not deposited sales tax in proper manner.

However, no action of such sort has happened till now.

Recently FBR Chairman said the Board is going to introduce forensic audit of cellular companies during this financial year. The forensic audit would be for the verification of the claims of the telecom operators that they are paying more taxes in Pakistan than anywhere else in the region, he added.

FBR Chairman was responding to PAC Chairman Syed Khusheed Ahmed Shah who asked about the mechanism to check whether telecom sector was paying the tax to government they collect from millions of mobile phone users in the country.

This correspondent approached FBR for its latest viewpoint on the issue, which is given as below.

FBR Officials viewpoint:

The FBR is introducing forensic audit of cellular companies during 2016-17. The forensic audit would be for the verification of the claims of the telecom operators that they are paying more taxes in Pakistan than anywhere else in the region.

The FBR has apprehended that the sales tax payments have not been properly deposited by the telecom sector and there is a need to thoroughly investigate the relevant tax record by deploying forensic auditors.

There was 14 percent direct tax on telecom services whereas provinces were collecting 18.5 percent sales tax.

So far, the firm to conduct forensic audit of telecom companies has yet not been finalized.

This is essentially the same status and viewpoint that we had 2 years ago.

We should either drop the idea altogether and let the blame of under reporting go away from telecom operators, or conduct a audit finally to find out the ultimate truth about the matter.