PAC Directs FBR and AGP to Review Audit Paras

The Chairman of the Public Accounts Committee has directed the Federal Bureau of Revenue and the Auditor General of Pakistan to settle the paras for the handling of adult objections up to Rs. 10 million at the level of the departmental accounts committee to expedite the settlement of audit issues of 2019-20.

He gave these directions to the Auditor General of Pakistan (AGP) and the Federal Bureau of Revenue (FBR) during a meeting of the Public Accounts Committee (PAC) on Friday to review the audit paras of 2019-20.

Ayaz Sadiq, a member of the PAC, said that the total amount recoverable from the FBR stood at Rs 1.8 trillion. The AGP pointed out a short-levy of Super Tax of Rs. 16 billion from 123 banks and other companies during this period. The department had not initiated any legal proceedings to levy the Super Tax due to the weak monitoring of its collection.

The Chairman of the FBR, Dr. Muhammad Ashfaq Ahmad, asked for a 2-month period for the recovery of the amount of the Super Tax, and the PAC gave the FBR two months to speed up the recovery process. Dr. Ahmad said that tax administration in courts for the disposal of cases is a very serious and complicated issue. He added that the FBR needs 130 Commissioners’ Appeals to decide all the cases at the first level of appeals but presently has 30 Commissioners.

“I have taken up the matter with the Secretary Law to appoint Tribunal Members for completion of tribunals for early disposal of cases at the level of tribunals,” he stated, and added, “We need recovery of revenue to met our targets”.

The Chairman of the FBR said that it will approach all the ghee and cooking oil manufacturers to obtain information about the unregistered distributors and wholesalers, and will inform the PAC accordingly.

“The manufacturers have paid their own tax liability, but the issue is related to the collection of sales tax from unregistered distributors and wholesalers. We have information about the registered distributors and wholesalers of ghee and cooking oil but we need more time,” he said.

Dr. Ahmad assured the PAC that the matter would be resolved within months, and that the FBR has taken action against the officials involved in the cases of the steel sector. These tax officials were involved in the issuance of the exclusion/adjustment certificates to the steel units for not charging sales tax on power consumption against cheques that were not deposited in the national kitty.

According to the details, the FBR has initiated disciplinary proceedings against the Inland Revenue Commissioners who had issued exclusion/adjustment certificates to the steel units, but the cheques had not been deposited in the national kitty.

Sources added that notices had been served to the Inland Revenue Commissioners who had violated the law and caused a huge revenue loss.

The steel units are using electricity for steel and iron products and are required to pay sales tax as per the rates specified in the Sales Tax Special Procedure Rules 2007 (steel sector). However, the department had issued exclusion/adjustment certificates of sales tax that mentioned that the taxpayers have paid the sales tax through various cheques but it has not deposited the cheques in the national exchequer, for which the department has issued the exclusion/adjustment certificates.

The FBR is investigating how many of such exclusion/adjustment certificates had been issued to the steel units in Lahore, and what the actual revenue loss was on this account. The auditor designated by the Director General (Audit) Lahore of the Auditor General of Pakistan had pointed out glaring discrepancies in the collection of sales tax from steel units falling under the jurisdiction of the Corporate Tax Office (CTO), Lahore, that need stern action besides reconciliation by the concerned zone/CTO.

The details revealed that in the CTO, Lahore, the Commissioners had issued exclusion certificates under Sub Rule 3(A) of Rule 58H of the Sales Tax Special Procedure Rules, 2007, to the registered persons so the Lahore Electric Supply Company (LESCO) had not charged sales tax per unit against advance payment (postdated cheques), but these cheques had not been deposited in the government treasury, and the payments are not subsequently appearing in the sales tax collection/ledger of the registered persons.

The loss of revenue specified in the Audit Report 2019-20 is about Rs. 900 million in only 40 cases for the period July 2016 to June 2019. There are more than 350 steel units registered in CTO, Lahore. The Member IR (Operation) FBR has constituted a fact-finding committee to investigate this matter, quantify the actual loss of revenue and the responsibility of this alleged tax fraud be fixed to commence action internally, and recommend the case to any external agency for criminal proceedings.

A fact-finding enquiry committee examined the discrepancies in the collection of the sales tax from Lahore’s steel units. Its chairman submitted a report confirming the fraud of the non-deposit of the sales tax payment collected through cheques in 39 cases only.

The CTO, Lahore has succeeded in recovering an amount of Rs. 153.667 million so far. The first information reports (FIRs) have been registered against the registered persons in 17 cases, and an amount of Rs. 505.074 million is still under-recovery. The pending recovery in the sub judice cases confirmed the viewpoint of the audit of the fraud.

The fact-finding enquiry committee observed that the loss of revenue in these cases is deliberate, and that the two exclusion certificate involving revenue of Rs. 436.63 million have been issued to the unregistered person and no cogent reasons had been provided by the CTO for its issuance to a non-existing entity. The issuance of an exclusion certificate to an unregistered person was a serious lapse on the part of the concerned commissioner(s).

The committee also observed that this situation is alarming because if the same exercise is replicated on an overall basis in 350 steel sector cases within the zone of the CTO, Lahore, the quantum of irregularity for missing/dishonored cheques would be much higher.

The FBR has initiated disciplinary proceedings against the commissioners who had issued the exclusion certificates, and an investigation has been initiated in the remaining 310 cases in which exclusion certificates had been issued against postdated cheques and the subject cheques had not been not deposited in the government treasury.