The Federal Board of Revenue (FBR), infamous for corruption and inefficiency, is now turned into House of Fraudsters. The recent news of tax frauds and scams - fake refunds, non-collection of tax by withholding agents, flying invoices, under invoicing, excessive payments of export rebate, just to mention a few - confirm that even the present government, despite tall claims, has failed to eliminate mafia-like operations in FBR. While unholy alliance between corrupt tax officials and unscrupulous elements is depriving the nation of billions of rupees, the government through Statutory Regulatory Orders (SROs) is criminally giving benefits to the rich and mighty - shifting the incidence onto the poor through exorbitant indirect taxes. A report published in an English daily on January 14, 2014, No steps taken to recover Rs 128bn from fraudsters reveals that the Regional Tax Offices (RTOs), Karachi remain unable to take any action against individuals involved in the tax fraud of Rs 128 billion. The report quotes an official on request of anonymity that the amount of Rs 40 billion relates to 4,000 registered sales tax units with the three RTOs, obtained on fake invoices and Rs 88 billion where illegal input adjustment was made. The report quotes an official document showing that that the three RTOs blacklisted the sales tax registration of around 4,000 persons under section 21(3) of the Sales Tax Act, 1990 that were involved in tax fraud, but no measures have been taken so far to recover the evaded amount awarded to them with the collaboration of some senior tax officials. The report alleges that delinquent officers have been cleared covertly despite the fact bogus purchases were made from blacklisted suppliers. The report further reveals that a comprehensive report was submitted in June 2013 against persons involved in the scam, but the senior tax officials are deliberately delaying the matter. The official document, according to report, also criticises the role of the Directorate General of Intelligence and Investigation for supporting the criminals by just issuing Red Alerts instead of lodging FIRs against them knowing these have no legal force. After the World Bank-funded six-year-long Tax Administration Reforms Programme (TARP), FBR has been making tall claims about its automation efforts. All the chairmen of FBR, who headed the apex revenue authority for the last 10 years, have been assuring the public from time to time that after introduction of automated procedures in all the departments, the possibilities of tax fraud had been effectively countered. But the facts and figures show that since 2005 when computerised processes were introduced, the incidences of tax frauds increased substantially as compared to the days when manual procedures were in vogue. This means that before going for automation, neither system analyses were properly conducted nor quality and training of human resource employed was ensured. The number of tax scams surfaced since 2005 and huge quantum involved testify to the fact that there is a complete failure on the part of FBR to implement pre-emptive measures against tax frauds despite having a number of support organisation like Directorate General of Intelligence and Investigation, Directorate General of Customs Valuation, the Directorate General of Post Clearance Audit, the Directorate General of Internal Audit, the Directorate of Input-Output Coefficient Organisation, Project Director WeBOC and the Directorate General of Training and Research. It is an undeniable fact that the officers and staff involved in tax frauds are seldom, rather rarely, punished - for frauds committed between 2005 to 2012 see Sordid story of tax frauds, Business Recorder, February 1-3, 2013. The present Chairman of FBR must read it and take appropriate action. He should also consider the recommendations of one-member commission submitted to Supreme Court of Pakistan in October 2013 for curbing tax evasion and corruption rampant in FBR. The present government has made a commitment to the International Monetary Fund (IMF) that it would amend the Anti-Money Laundering Act, 2010 to include tax crimes in the Schedule of Offences to enable the use of anti-money laundering tools to combat tax frauds, by end-June 2014. According to the Letter of Intent dated December 5, 2013 available on the IMF website, the government of Pakistan undertakes...to broaden the tax net through elimination of most tax exemptions and loopholes granted through SROs. Strangely, since the start of the programme, the government has issued SROs granting blanket amnesty from probe into source of investment in new industries. Additionally, section 111(4) of the Income Tax Ordinance, 2001 - a permanent amnesty scheme - is still in operation. It debars any probe into source of remittances received through normal banking channels. This despicable provision of law provides evaders complete protection in respect of untaxed money. No question can be asked by the tax authorities if untaxed money is remitted from outside (modus operandi of tax evaders and criminals is to first send money abroad through hundi/hawala and then get it back as foreign remittance) - many money exchange dealers extend this service for a small premium of 1 to 2 percent. We have been highlighting the disastrous ill effects of this law since its introduction, but people who matter in the land have never paid any heed. Prime Minister of Pakistan, Finance Minister and IMF people must be aware of the fact that even today, FBR through its Letter No F.4(34)/ITP/2002 dated 29-02-2002 reaffirms that the Department would adhere to its policy of not probing the foreign remittance brought into Pakistan by any person. Terrorists, tax evaders, smugglers, corrupt officials, extortionists, drug barons and criminals do not need any special amnesty scheme as it is available permanently in the shape of section 111(4) of the Income Tax Ordinance, 2001. This provision is a slap on the face of honest taxpayers. An extortionist can decriminalise his ill-gotten money through this provision but any honest businessman who pays that extortionist due to shameless failure or connivance of law enforcement apparatus cannot even claim it as an expense in his tax return! In the face of this reality, the recent move to establish a committee for gradual withdrawal of SROs [Committee notified: governments acts to deal with concessionary SROs, Business Recorder, January 4, 2014] is nothing but eyewash. There is no intention to scrap section 111(4) of the Income Tax Ordinance, 2001. Pakistan, faced by huge budgetary and current account deficits, is in dire need of resource mobilisation. Instead of raising taxes for already depressed economy, giving free perks and plots and extending concessions through SROs, the government must devise a well-thought-of anti-money laundering-cum-asset-seizure legislation to draw upon the huge reservoir of untaxed money and utilise it for growth. If swift action is not taken to seize money and property arising out of corruption, tax evasion and nacre-arm-trade, we are bound to face collapse. (The writers, lawyers and Adjunct Faculty at Lahore University of Management Sciences (LUMS), are partners in law firm, Huzaima & Ikram)
Posted on: Fri, 17 Jan 2014 02:21:26 +0000
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