'RGST to pave way for tax frauds, fake invoices'

The introduction of the Reformed General Sales Tax (RGST) would pave way for tax frauds and business of fake and flying invoices as happened in the past. This was stated by Former Member Federal Board of Revenue (FBR) and economist Dr Ather Maqsood Ahmed while sharing his experience on the RGST at a conference organised by Pakistan Institute of Development Economics (PIDE) here on Wednesday.
According to him, there are strong apprehensions of tax frauds following enforcement of the RGST. It is feared that the unscrupulous elements would commit such frauds in connivance of the tax officials. Apparently, there are no checks in the system to pinpoint sales tax frauds under the RGST. The business of fake and flying invoices may again start in the markets as sales tax has to be paid at each stage of the value addition. When such complex system would be enforced there is a strong possibility of fraudulent refund claims on the basis of fake sales tax invoices.
However, FBR Member Abrar Ahmed Khan disagreed with the viewpoint of professor Ather with the comments that the electronic return filing system is foolproof where tax frauds cannot take place. "All frauds are gone", FBR Member commented.
He said that the electronic verification system has made it impossible for any person to commit tax fraud. This has happened due to the e-filing system of the FBR having the capacity to successfully check the authenticity of the refund claim. The verification of invoices and exports is possible under the Expeditious Refund System, which has eliminated the possibility of the tax frauds under the RGST. Since Dr Ather has left the FBR in 2007, a lot of advancements has been made on the IT side which has plugged the loopholes in the system.
He said that most the direct taxes are coming from withholding taxes and presumptive tax regime. The actual problem in the taxation system lies with the income tax side where nobody is ready to pay taxes. About the compliance level of retail sector, Abrar said that only 300 big retailers have availed the lucrative scheme of paying nominal amount of sales tax under special procedure which reflects highest level of non-compliance.
Among the big compliant retailers, it covered Utility Store Corporation and CSD Shops which are registered and contributing major amount of the retail sector. Under the existing scheme, retailers having annual turnover more than Rs 2.5 million, the rate of tax is Rs 6,250 plus 0.75% of turnover, which is in excess of Rs 2.5 million. FBR Member pointed out that the tax machinery is fully equipped to tackle the enforcement and compliance related issues. However, there is a need of proper audit under the self-assessment scheme.