FBR fails to detect Rs2.6bn wrong input tax adjustments

ISLAMABAD: The IT system of the Federal Board of Revenue (FBR) has failed to detect wrong input tax adjustments of Rs2.6 billion obtained by 398 units against the sales tax invoices issued by the blacklisted/ suspended companies.

This was disclosed by the Auditor General of Pakistan in its audit report for 2020-21 on the affairs of FBR.

The report revealed that according to section 21 of the Sales Tax Act 1990, in cases where the Commissioner Inland Revenue is satisfied that a registered person is found to have issued fake invoice or has otherwise committed tax fraud, he may blacklist such person or suspend this registration.

Further, during the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of the sales tax refund or input tax credit, and once such person is blacklisted, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such black listing, shall be rejected through a self speaking appealable order and after affording an opportunity of being" heard to such person.

During audit of the financial year 2020-21, the AGP observed that 398 registered persons under the jurisdiction of nine field offices of FBR had claimed input tax adjustment against the invoices issued by the blacklisted, suspended or non-active taxpayers which were not admissible. This resulted in inadmissible adjustment of input tax of Rs 2.6 billion.

The lapses were reported to the department during March to November 2021. Department replied that cases of Rs 84.78 million were under adjudication and no reply was furnished by the tax department in cases of Rs 2,524.82 million.

The AGP in its meetings held in February 2020 and December 2021 directed the department to expedite adjudication and showed serious concern in non-responded cases and directed to submit updated status of the para to Audit and FBR. No further progress was reported till finalization of the report. Audit recommends early adjudication of cases and submission of updated reply in non-responded cases.

The AGP recommended addressing the systemic recurrence of such issues; FBR should strengthen its IT based controls for identification of such instances.

Copyright Business Recorder, 2022