Probing ST fraud cases: FBR DG I&I no more empowered

The Directorate General Intelligence and Investigation Federal Board of Revenue (FBR) would not remain empowered to investigate and prosecute cases of sales tax, mega tax scams and tax frauds already detected by the agency following proposed amendments in the Sales Tax Act, 1990 and Federal Excise Act, 2005 to create separate investigating agency of Inland Revenue (IR).
It is learnt here that the Finance Bill 2011 has proposed an amendment in section 30A of the Sales Tax Act, 1990 and sub-section (2) of section 29 of the Federal Excise Act, 2005 to create Directorate General Intelligence & Investigation (Inland Revenue). The proposed Directorate General will be assigned the work of detection of tax frauds of Sales Tax & Federal Excise presently being done by DG I&I - FBR.
Moreover, DG I&I - FBR will not remain empowered to investigate and prosecute the cases already detected by its staff and it would hamper recovery drive of directorate against already initiated against mega sales tax scams. The proposed amendments under the Finance Bill would considerably curtail the powers of the directorate having ample experience of detection of historical tax fraud cases unearthed from time to time by the agency.
Sources said that the DG I&I - FBR was established in 1957 and since then it works as eyes and ears of the FBR. This organisation has so far successfully handled investigation and prosecution of a number of mega customs and sales tax frauds. On customs side, it has unearthed mega cases like ISAF Scam, Missing Container Scam and Bawan Shah Case, whereas on sales tax side it recently detected two mega scams of sales tax - one at Karachi and one at Lahore wherein 241 dummy/fictitious firms involved in issuing fake / flying invoices.
The amount of tax fraud at Lahore and Karachi is Rs 10.00 billion and Rs 15.1 billion, respectively. Thus the total amount of tax fraud goes up to Rs 25.00 billion. According to sources, more than 6000 taxpayers who illegally adjusted input tax on the basis of fake/flying invoices have been detected.
The Directorate General lodged FIRs against the fraudsters and so far 17 fraudsters have been arrested. The Directorate General has also recovered more than Rs 1.40 billion from the tax fraudsters in the shape of cash and post dated cheques and its has been acknowledged by Salman Saddique, Chairman FBR.
Sources said that the performance of DG I&I - FBR speaks volumes about its competence as intelligence and investigation agency for FBR. The reason behind success of DG I&I - FBR is that it is mainly manned by officers of Pakistan Customs Service who have long experience of detecting and investigating cases of sales tax and federal excise.
After merger of functions of Direct and Indirect Taxes the RTOs (Regional Tax Offices) and LTUs (Large Taxpayers Units) have all powers under the Sales Tax Act, 1990 and Federal Excise Act, 2005 to detect evasions of sales tax and federal excise duty. However, they are primarily focusing on documentation of economy on the direct taxes side.
The amendment in the Section 30A of the Sales Tax Act, 1990 and sub-section (2) of section 29 of Federal Excise Act, 2005 the existing DG I&I - FBR would not remain empowered to detect frauds in sales tax and federal excise and to investigate the already detected mega tax frauds.
Resultantly, all the entire cases detected by DG I&I - FBR including mega sales tax scams would be transferred to proposed DG I&I (IR) which has yet to develop capacity to investigate and prosecute such cases. The creation of new DG I&I (IR) would take away the powers of the Customs Intelligence department from detection of mega tax scams due to withdrawal of the proposed powers of investigation.
As compared to the newly created agency, DG Intelligence and Investigation FBR has experienced workforce of customs officials having vast experience of sales tax and federal excise related matters. It is pertinent to mention that DG I&I - FBR has nominated big business tycoons in the FIRs lodged at Lahore and Karachi.
Moreover, the Directorate General is also trying to find nexus, if any, between the tax officials and the business community which results into huge evasion of Sales Tax. For the last two months business community has been trying its level best to pressurise FBR and DG I&I FBR to stop criminal proceedings against its members. The compliant taxpayers are perceiving it as a favour to the tax evaders.
It is pertinent to mention that the DG I&I - FBR has very limited powers under the Sales Tax Act, 1990 as it has to seek approval of the FBR before initiating audit and criminal proceedings against any registered person, whereas all RTOs and LTUs are completely empowered under Sales Tax Act, 1990 and Federal Excise Act, 2005 to detect tax frauds and initiate audits of registered persons without any prior approval of the FBR. In order to secure government revenue and detection of cases to the tune of billions of rupees, the powers of the Directorate General Intelligence and Investigation FBR Federal Board of Revenue (FBR) would not remain.