Checking fraudulent refund claims: FBR considering 'Web-Based Invoice System'

The Federal Board of Revenue (FBR) is examining a proposal to introduce a 'Web-Based Invoice System' on the FBR website to computerise issuance of sales tax invoices by registered persons for checking fraudulent refund claims.
Sources told Business Recorder here on Tuesday that certain unscrupulous elements had used fake sales tax invoices for claiming bogus refunds. In the past, a number of cases had been detected where refunds were claimed on fake invoices. Even computerised systems of the FBR were unable to completely check the issuance of inadmissible refunds on forged documents.
To check bogus refunds, the FBR can use its web system to introduce a standard centralised invoice system on the website, making it mandatory for all the sales taxpayers to issue the sale invoice by downloading from the Web. The proposed system would end the manual use of fake invoices by certain companies, allegedly involved in obtaining refunds on illegal sales tax invoices.
Under the proposal, the computer system would automatically generate and print a sequence (serial number) on standard formatted invoice (to be designed by the Sales Tax Wing) with a special bar code generated by the system, ensuring the genuineness of the invoices and the taxpayer. The idea is similar to the computerised payment challan which is downloaded from the FBR-Website on which the taxpayer deposits money due on the return in the bank.
This would help in checking the issue of fraudulent refunds claimed on fake and flying invoices. On the other hand, it would also facilitate matching the serial number of invoices mentioned in the invoice summaries submitted by the refund claimant. The computer system programme would electronically verify the serial number of invoices to clear the refund claim immediately.
Sources said the Director General FBR Information Management System (IMS) had submitted the proposal to the FBR Task Force for improving the refund and invoice checking system. When contacted, a tax expert said the proposal of the DG IMS was only possible in tax administrations with 100 percent automation and electronic data matching system.
In case of Pakistan, the FBR should obtain National Tax Numbers (NTNs) and computerised national identify card numbers (CNICs) of unregistered buyers through sales tax invoices. This necessitates an amendment in section 23 of the Sales Tax Act, 1990 requiring the supplier of taxable goods to mention the NTN or CNIC number on tax invoice in case of un-registered recipient/buyer.
According to experts, it is almost impossible for the small taxpayers to specify the NTNs/CNICs in cases of supplies made to the un-registered buyers/recipients. It is not possible for small units to provide data of un-registered buyers who purchased goods.
The proposal is practicable in case the condition is being made mandatory only for manufacturers. Similarly, the FBR should implement the decision in phase-wise manner.
In the first phase, the condition may be made compulsory in cases of supplies made to un-registered units by the Large Taxpayer Units. The units registered with the LTUs have the IT capacity to document the data for supplies made to both the registered and un-registered persons.
In the next phase, the condition must be made mandatory for the medium taxpaying units and later for small taxpayers in a systematic manner. It is worth mentioning that a registered person is required to give name, address and registration number of the recipient of the supplies in the tax invoice.
However, if the supply is made to an unregistered person then tax invoice does not contain any specific information regarding the recipient of the supply; hence, an unregistered person cannot be traced. In order to trace the unregistered recipients of supplies and to broaden the tax net, it is proposed that the details of NTN or CNIC number, in case of unregistered recipients, may also be incorporated in the tax invoice, by amending clause (b) of sub-section (1) of section 23 of the Sales Tax Act, 1990.