The Federal Board of Revenue (FBR) has directed its field formations to investigate those high volume/value of transactions with little or no net sales tax payment to detect sales tax frauds.
According to the FBR’s procedure issued to the Inland Revenue field formations, the field officers shall obtain complete data and make thorough scrutiny to ascertain the truthfulness of declarations to deal with cases involving fake/flying invoices.
The FBR has directed the field formations to immediately investigate the following situations:
- High volume or value of transactions with little or no net sales tax payment;
- The value of purchases and input tax thereon are equal or greater than the value of supplies and output tax respectively;
- Consistently huge carry forwards, with unrealistic levels of stocks;
- The meager capital amount declared in wealth statement/company’s accounts vis a vis huge stocks;
- Use of frequent & huge credit notes to avoid payment of due sales tax;
- Recent registration, usually less than 2 years, with high-value purchases or supplies or sudden start of voluminous transactions after a long dormant period;
- Registered persons’ addresses in low-income, residential, or remote areas;
- Income tax returns are either not filed, or filed with very low income. No withholding tax deduction despite the declaration of huge transactions;
- The nature of supplies is different from purchases (purchases of textile goods but supplies of iron scrap or vice versa etc. etc.);
- Focus on the cases of commercial importers, dealers/distributors of large companies, and dealers of petroleum products which are generally engaged in issuing flying invoices. In such cases, a diligent comparison of goods imported/purchased with the nature of business of the buyers shall help establish the wrong-doing by the registered persons. Such persons usually operate in networks.
As per the directions, when an issuer of fake/flying invoices is identified; scrutiny of the forward and backward transactions i.e. purchases and sales in Annex A and Annex C of their sales tax returns, shall help in uncover other wrongdoers in the supply chain. fake/flying sales tax invoices.
They shall particularly focus, inter alia, on the following characteristics of registered persons’ declarations for the discovery of fraudulent use of fake/flying invoices.
On having captured the data of fake/flying invoices and particulars of registered persons involved in the fraudulent activity, the staff shall also verify the physical existence of such registered persons and such reports shall be made part of the record, the directions added.