FBR Uncovers Rs. 13 Billion Sales Tax Discrepancy in Audit of Major Tractor Manufacturer

On the direction of the President of Pakistan, the Large Taxpayer Office (LTO) Lahore has concluded an audit of a leading tractor manufacturing company, allegedly detecting serious sales tax discrepancies to the tune of Rs. 13.286 billion.

According to the audit report of M/s Millat Tractors Ltd (MTL) submitted by the LTO Lahore to the Federal Tax Ombudsman (FTO), the LTO has also imposed a penalty of Rs. 5.414 billion besides a sales tax involved of Rs. 13.286 billion.

The LTO Lahore has issued a show cause notice to the tractor manufacturing company (tax year 2022) to explain sales tax discrepancies of Rs 13.286 billion during an audit.

In November 2023, the President directed the Federal Board of Revenue (FBR) to restore an investigation against MTL against an alleged inadmissible sales tax refund of over Rs. 12 billion for the tax period 2018-2022.

President had dismissed representations filed by the FBR and the MTL and endorsed the order of the FTO for initiation of recovery proceedings against the said company.

The President in his decision has observed that since FBR has already initiated Audit proceedings against the MTL for Tax Years 2018-2022 which are currently under process, any interference in the matter is likely to prejudice the independence of the competent authority and is thus being avoided. The order also requires FBR to provide proper opportunity to MTL so that their viewpoint is also made part of the Audit report, the President’s order added.

The summary of sales tax discrepancies issued by the LTO Lahore revealed that an inadmissible/unlawful claim of input tax under section 8 of the Sales Tax Act totaled Rs. 364 million and a penalty of Rs. 18.2 million.

The inadmissible/unlawful claim of input tax on account of purchases made from blacklisted/suspended and non-active suppliers has been reconciled by the LTO Lahore.

The inadmissible/unlawful claim of input tax on account of non-apportionment of input tax against exempt supplies totaled Rs. 713,819 and a penalty of Rs. 35,691.

The inadmissible/unlawful claim of input tax on account of purchases made from suppliers not registered under the Sales Tax Act amounted to Rs. 110.7 million and a penalty of Rs. 5.5 million.

The inadmissible/unlawful claim of input tax on account of excess purchases/consumption of fuel and power declared in the sales tax returns stood at Rs. 69 million and penalty of Rs. 3.4 million.

The short payment of sales tax on account of unauthorized reduce-rate supplies to buyers not engaged in agricultural activities has been calculated at Rs. 3.69 billion and a penalty of Rs. 3.69 billion.

The non-payment of sales tax/further tax on account of suppression of sales has been worked out at Rs 1,864,827,471 and a penalty of Rs. 93.2 million.

The short-payment of sales tax due to non-withholding of sales tax on advertisement services has been reconciled by the LTO Lahore.

The short payment of sales tax by misusing SRO.563(I)/2022 amounted to Rs. 1.3 billion and a penalty of Rs. 1.3 billion.

The non-payment of sales tax against advances received from customers amounted to Rs. 214 million and a penalty of Rs. 10.7 million.

The inadmissible/unlawful claim of input tax on account of non-compliance of sections 7, 8 (1) (ca) (d), and section 73 of the Sales Tax Act amounted to Rs. 5.66 billion and a penalty of Rs. 283.1 million.

LTO Lahore further informed LTO Lahore that the quasi-judicial proceedings are underway after the issuance of show cause notice under section 11 of the Sales Tax Act 1990. The said show cause notice shall be concluded after allowing a reasonable opportunity to be heard by the registered person. Since audit proceedings stand concluded, as per recommendations of the FTO, thus, compliance has been made to the said recommendations. The instant compliance report has been submitted to the FTO office, LTO Lahore report added.

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