The definition of sales tax fraud has been proposed to be changed to check the smuggling and local trading of goods on which sales tax has not been paid during the supply chain of business.
The FBR through C No 1(12) TR/IR-Ops (IR-Code)/2021-114506-R dated July 1, 2023, has issued a draft of the proposed amendment to be made in the fiscal statutes by the Finance Bill, 2024. The statutes are Income Tax Ordinance, 2001; Sales Tax Act, 1990; Federal Excise Act, 2005, and Islamabad Capital Territory (Tax on Services) Ordinance, 2001.
The FBR has also proposed to change the definition of “tax fraud” under Sales Tax Act, 1990.
Under the proposed law, the traders, who have acquired or possessed smuggled goods, will be deemed to be involved in tax fraud for which there are severe consequences in the law.
Similarly, the scope of sales tax fraud is intended to be enlarged by the Federal Board of Revenue revealed through seeking amendment in section 2(37) of the Sales Tax Act. The existing definition of sales tax fraud provided under section 2(37) is quite comprehensive, however, the new proposed definition is more exhaustive and drafted to further enlarge its scope, tax experts added.
The existing definition is as under: (37) Tax fraud means knowingly, dishonestly, or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused) –
- Doing of any act or causing to do any act; or
- omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act;
- falsifying or causing falsification of the sales tax invoices, in contravention of duties or obligations imposed under this Act or rules or instructions issued there-under with the intention of understating the tax liability or underpaying the tax liability for two consecutive tax periods] or overstating the entitlement to a tax credit or tax refund to cause loss of tax.
The proposed definition: (37) “tax fraud” means intentional evasion of legally due tax or obtaining of undue refund by submission of false return, statements, or false documents or withholding of correct information or documents and includes-
- suppression of sales or receipts that are chargeable to tax or duty under this act;
- false claim of deductions or expenses;
- making taxable supplies of goods or services without issuing any invoice, in violation of the provisions of this Act or the rules made there-under;
- issuance of any invoice or bill without supply of goods or services leading to wrongful availing or utilization of input tax credit, deduction or refund of tax;
- availing of input tax credit or deduction using an invoice or bill referred to in clause (d);
- evasion of tax by availing undue input tax credit, deduction or obtaining undue refund by any means or method other than that covered under clauses (a) to (e);
- collection of any amount as tax but failing to deposit the same in the prescribed manner beyond a period of three months from the date on which such payment becomes due;
- falsification or substitution of financial records or production of fake accounts or documents or furnishing of any false information through human, mechanical, or electronic means with an intention to evade tax due under this Act; (h) tampering with or destroying of any material evidence or documents required to be maintained under this Act or the rules made there-under through human or digital means; or
- acquisition, possession, transportation, disposal or in any way removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner dealing with, any goods in respect of which there are reasons to believe that these are liable to confiscation under this Act or the rules made thereunder.
Explanation: Any act or omission mentioned in this clause shall be treated as intentional unless the person accused of tax fraud proves that he had no intention, motive, knowledge, or reason to believe that he was committing tax fraud.
