Mega sales tax fraud cases: ST Act Section 8A invoked to penalise supply chain

The Federal Board of Revenue for the first time invoked provisions of Section 8A of the Sales Tax Act, 1990 to penalise the entire supply chain involved in mega sales tax fraud cases at Karachi and Lahore.
It is learnt here on Tuesday that scope of investigation was extended to supply chain of the taxpayers who were involved in issuing bogus/ fake sales tax invoices. Recently, the FBR customs intelligence has busted the gang of culprits involved in issuing fake sale tax invoices and lodged different FIRs in the jurisdiction of Lahore and Karachi.
According to experts, this is for first time in Pakistan that any tax detecting agency has gone to such an extent and invokes the provisions of section 8A of the Sales Tax Act, 1990. The section 8A is related to the 'joint and several liability' in supply chain where tax remain unpaid within the supply chain. The provision was incorporated in Sales Tax Act couples of years back.
Without invoking section 8A of the Sales Tax Act it is not possible for the tax department or investigating agency to involve the entire supply chain in the case. This provision was taken from the analogy of missing tax fraud crimes from UK and Europe. In Pakistan usually in such cases inquiries restricted to the extent of buyers and seller who involved in the transaction. However, this time the third party who made transaction from the buyer/claimant of alleged fraudulent input tax was also booked under the FIR. Within the entire supply chain, it has to be seen that how the third person engaged in purchase of goods from the claimant of alleged bogus input tax has also been held responsible for the fraud. It seemed that the provision of section 8A of the Sales Tax Act has been invoked during investigation of the fraud under which the unpaid amount of sales tax could be recovered from the entire supply chain as per said provision of the law. The extension of the scope of inquiry therefore may multiply the effect of government recoveries. According to an initial estimate alleged amount may go beyond 50 billion.
When legality of the exercise was questioned from the VAT expert Arshad Shehzad, he informed that it is correct that number of culprits groups are involves in this paper transaction business, since sales tax in Pakistan is operating under VAT mode regime, which is a self assessment scheme hence there are always high-risk of abusing the system. Unfortunately, Pakistan is one of the countries where electronic/computerised verification was just placed in near past. The computerized system is still in its initial phase and there are no provisions for electronic tax payment verification system for complete supply chain. Furthermore, besides tax verification, other essential verifications like description of goods purchases and supplies were not yet part of the electronic system. The tax dodgers thus exploit the system and still operating under the shelter of legal framework.
According to him, under such scenario it may be very difficult for any government agency to establish such cases against third party/supply chain of such transactions. It is also important to note that under the VAT mode regime the regulator encourages taxpayers to transact with Active Taxpayers who are not blocked nor blacklisted, with payment modalities of cross declared business account. Hence legal outcome of the above cases would be interesting and set the future trend of this critically important issue, Arshad Shehzad added.