Was There a Tax Scam at FBR?

The Federal Board of Revenue (FBR) has taken strong exception to the news story captioned, “Biggest tax scam surfaces in FBR,” published in a local English daily on 6 February 2022.

Calling it “malicious in intent and suspicious in content,” the tax machinery declared that “the information contained in the instant news story is laughably unfounded, misleading, and far from facts.”

The regulator explained, “It has been claimed in the subject news story that a new tax scam has surfaced in FBR where tax authorities illegally paid over Rs. 16 billion in Sales Tax refunds to hundreds of big retailers in the past five months. Unfortunately, the information contained in the instant news story is laughably unfounded, misleading, and far from facts. The scribe of the story failed to understand even the basic procedure and relevant laws involved in the issuance of refunds and deduction/disallowance of an input tax adjustment. Similarly, the said reporter failed to understand the basic difference between issuance of refund and input tax adjustment.”

While clarifying its position, the FBR stated that the matter does not relate to refunds, as claimed in the news story. Instead, it pertains to input tax adjustment of Tier-1 retailers who failed to integrate with the POS System. FBR has explained that an amendment was introduced in the relevant provisions of law recently that all those Tier-1 retailers who failed to get registered with POS System would not be entitled to claim 60 percent of input tax adjustment in their monthly Sales Tax Return.

Legally speaking, the FBR remarked that this is a regular check that Field Formations undertake in routine. However, to automate the process, Sales Tax General Orders (STGOs) were issued to do the same through the IT system. This is only ridiculous to assume as in the malicious story that the regular enforcement action got displaced with the issuance of the STGOs. Even otherwise, it was only a punitive deferral, which is being mixed with refunds allowed. “FBR has put in place a very robust system to verify the payment and deduction of input tax adjustment and there are many checks built in the system to authenticate and verify the processes,” it added.

Reacting to the instant news story, FBR has clarified that the matter was brought to the notice of Chairman FBR/Secretary Revenue Division, Dr. Muhammad Ashfaq Ahmed, who ordered an inquiry into the matter to ascertain as to why the changes made into the system were not effectively working.

In case of any technical glitch, it would be scrutinized as to how this malfunction occurred, and the fault would be rectified in the minimum possible time. Moreover, while responding to revenue loss as mentioned in the news story, FBR has clarified that Field Formations are already enforcing the law, and in case any input has been allowed, it would be disallowed in next month’s sales tax return, which is a routine function of the tax administration. It is pertinent to mention that FBR had already taken up the matter on its own, and Chairman FBR had already ordered an inquiry into the same. Interestingly, this is not something that came to light after the publication of instant news stories. Rather the system itself identified this malfunctioning/anomaly, which resulted in an immediate inquiry.

FBR has further reiterated that the subject news report is based on the incorrect appraisal of facts. Calling it a ‘scam’ reflects on the irresponsible reporting, which must be shunned by all sane elements in society. While concluding, FBR has resolved that all unduly allowed adjustments would be disallowed.

The tax machinery maintained that it had ushered in a new era of clean taxation through various innovative interventions both at the policy and operational levels. These out-of-box initiatives have not only have translated into consistent revenue growth but also bridged the trust deficit between FBR and taxpayers. “Therefore, the ongoing drive for digitization, transparency, and taxpayers’ facilitation across the country has already perturbed those vested economic interests who have largely been the beneficiary of various tax exemptions and revenue leakages for decades, and who could, in fact, be behind such ludicrous content to demoralize the tax administration. Malicious news items like this one are, indeed, published to malign FBR and serve the interest groups who are frustrated by the measures adopted by FBR to maximize tax compliance through a transparent tax system, driven by technological innovations,” it said.

The Chairman has also instructed Member (Public Relations) FBR to arrange regular training sessions for FBR reporters in tax laws and procedures to help them avoid absurd sensationalism in the future, it concluded.