KARACHI: A comprehensive report regarding the last nine months performance of the Sales Tax Department of Regional Tax Office (RTO) Karachi region was recently presented to the Federal Board of Revenue.
The report was also presented to the FBR Chairman Tariq Bajwa during his recent visit of Karachi. Tariq Bajwa also held a couple of meetings during his visit in which he met with the Chief Commissioners and the Commissioners of the region and asked them to improve their working particularly of the Sales Tax department.
Following is the text of the report of the Sales Tax Department presented to the FBR:
CREST Discrepancies:
A special team was created to address Order-in-Original were passed major cases raising demand of Rs 1,467 million and Rs 17 million has been recovered. Recovery in remaining cases was hindered as they are closed / non-existent. All of these have been black listed and concerned RTOs/Zones have been asked to recover the amount from their buyers/suppliers.
Suspension/Blacklisting: 1160 bogus/closed registered persons were suspended out of which 958 were blacklisted after due process. This will have huge deterrent and positive revenue effect, enabling recovery of input tax/refund claimed against invoices of these persons Rs.7 million has so far been recovered.
Misuse of Zero-Rating Facility: After re-verification, recommendation sent to FBR for de-notification of zero rating facility from 34 registered persons due to misuse. Order-in Original passed in 18 cases, raising demand for Rs 15 million and Rs 5 million has already been recovered. Biggest case: Galaxy Textile, which was consuming zero-rated gas for generation of electricity being supplied to FESCO.
Illegal ‘Manufacturer’ status used for evading value addition tax: many commercial importers illegally got status of manufacturer to evade value addition tax at import stage. Out of 121 potential cases identified in this zone, physical verification was completed in 111, and illegal/misuse of status was found in 34 cases. Orders-in-Original were passed for Rs 691 million. Recovery proceedings were hindered due to stay orders and non-existence of the units on grounds, but these were suspended/ blacklisted and sent to Secretary (Automation and Registration), FBR to delete the manufacturing status. Efforts are being made to locate the culprits behind the scam for recovery.
Misuse of LACUNA in SRO 1125(1)/2011 by fabric manufactures: ST data analysis revealed that fabric manufactures were not charging sales tax at 3% on supplies of fabric. Notices issued to 100 such manufactures raising demand of Rs.85 million. Orders were passed in 5 cases, and Rs.3 million was recovered. However, remaining manufacturers responded that they charge sales tax at 2% on processing charges instead of at 3 % on the value of fabric. Thus, by exploiting a loophole in SRO 1125(1)/2001, they pay only 6% of the tax actually due on fabrics. Proposal sent to FBR to amend the SRO to require processors to mention full particulars of principal, so that proper tax may be recovered.
Detection of fake GDs cases: It was detected that many registered persons had obtained illegal input against fake GDs (M/s Double A Paper and others). All cases pertaining to RTO, Karachi were suspended/ blacklisted and action initiated for recovery from the buyers of invoices issued by these. This list was also sent to other jurisdictions for similar action against others. Revenue impact: Rs 600 million.
Detection of cases of self-invoicing: It was detected that during last 5 years, 4500 persons adjusted Rs.51 billion input tax against own invoices. Some of them did so due to technical issues (as in case of OMCs), but many were cases of tax fraud. Report sent to FBR and action initiated against all cases of RTO, Karachi.
Misuse of SRO 1125(1)/2011 by manufacturer of plastic products: It was detected that M/s Kolachee Industries was manufacturing plastic products but supplying them at 2% of the pretext of textiles (filaments/woven goods) After confirmation form custom house, Karachi, case made out involving Rs 800 million.
Detection of STARR allowing refund against blacklisted persons: It was detected that due to some flaw, STARR was validating refund against old blacklisted persons. Matter reported to FBR and CREST team for rectification.
Tracing out persons behind M/s Margalla Industries case: After great efforts, the proprietor of bogus unit M/s Margalla Industries was located. Upon Interrogation, he submitted a written statement naming the actual culprits behind Rs.111million scam. Efforts are being made to apprehend these persons, in coordination with the I&I-IR.
