ISLAMABAD: The Federal Board of Revenue (FBR) has announced plans to hold Chief Financial Officers (CFOs) accountable for the integrity of sales tax returns, following its failure to eliminate the pervasive issue of fake and flying invoices. This troubling trend has contributed to a staggering tax gap estimated at Rs3.4 trillion.
The Federal Board of Revenue (FBR) has implemented a significant policy shift aimed at combating the pervasive issue of fraudulent sales tax returns by holding Chief Financial Officers (CFOs) accountable for the authenticity of their companies’ filings. This decision comes in response to the FBR’s admission of its failure to eliminate the widespread practice of fake and flying invoices, which has contributed to an alarming tax gap estimated at Rs 3.4 trillion.
In an internal memorandum circulated among FBR field formations, Chairman Rashid Mehmood explicitly warned CFOs that they must ensure only genuine invoices are approved in their monthly tax submissions. He made it clear that the FBR will pursue criminal charges against any CFOs who sign off on fraudulent returns, stating, “We will initiate criminal proceedings against the CFOs of companies involved in signing the approval of fraudulent sales tax returns.”
Under the newly established guidelines, CFOs are now required to submit affidavits affirming the accuracy of their companies’ sales tax filings. These affidavits must confirm that the declared turnover and value of supply have been accurately reported, that no fake or flying invoices have been utilized by immediate vendors or other entities in the supply chain, and that all invoices correspond to taxable supplies as outlined in the necessary annexures.
Furthermore, CFOs must attest that no fictitious figures have been included in any part of the return or its annexures. The declaration carries a grave warning about the severe legal consequences of non-compliance, including potential arrest under Section 37 of the Sales Tax Act, 1990, and imprisonment for up to 10 years, underscoring the FBR’s commitment to addressing fraudulent practices.
While the FBR has provided a sample affidavit to guide CFOs in their submissions, which must be filed in hard copy, this initiative follows revelations of extensive misuse of flying invoices—fraudulent documents used to claim illegitimate input tax adjustments by taxpayers. A senior FBR official, speaking on the condition of anonymity, noted that while the affidavit requirement is not new, having existed as part of the online sales tax return filing system, the renewed emphasis on it highlights the FBR’s urgent need for compliance and its determination to target companies that exploit regulatory loopholes.
However, tax experts have expressed concerns regarding the FBR’s approach to holding CFOs accountable for fraudulent invoicing. Critics argue that large organizations consist of multiple departments each with its own standard operating procedures making it unreasonable to place the burden of responsibility solely on the CFO.
One expert quipped that asking a CFO to sign an affidavit about the authenticity of invoices is akin to requesting the FBR Chairman to declare that there is no corruption within the FBR. Former president of the Multan Tax Bar Association Muhammad Imran Ghazi also pointed out that the legal responsibility for compliance should lie with the company’s directors or owners rather than with CFOs, who are employees tasked with oversight.
