Fraudulent refunds/adjustments: DG I&I to ensure maximum recovery before end of June

Mohammad Riaz, Director General of Intelligence and Investigation, Federal Board of Revenue (FBR) has said the directorate is going all-out to realize recovery proceedings before June 30, 2011 in major cases of fraudulent refund claims/adjustments where recovery of Rs 1.4 billion has already been made from the Lahore-based units involved in the mega sales tax scam.
On the conclusion of the Senate Standing Committee on Interior here on Monday, head of the Directorate General I&I FBR told Business Recorder that the directorate has expedited efforts to ensure maximum recovery before June 30, 2011 so that the agency can play its due role to assist the FBR in achieving the revenue collection target for 2010-11. By June 30, the directorate would be able to recover the detected amount in such scams particularly illegal adjustments.
It has also been observed that in most of the cases a chain of dummy firms start claiming input tax on account of fictitious import Goods Declarations and then multiple layers of dummy/fictitious firms and ghost trail of fake invoices are created. He said that the directorate has expanded the scope of the investigation, which has resulted in detection of over Rs 15 billion of the fraudulent claims of the input tax adjustment through fake/flying sales tax invoices. The agency has also registered FIRs against the fraudulent refund claimants of Karachi-based persons. In consultation with the chambers, federations and trade bodies, the intelligence arm of the FBR is strongly pursing recovery proceedings against the involved units.
Mohammad Riaz stated that the figure of the fraudulent claims would be much higher following expansion of the investigation based on authentic data being collected by the agency. The estimated figure is expected to cross Rs 50 billion, reflecting the huge quantum of fraudulent claims. Keeping in view recovery of Rs 1.4 billion in Lahore and detection of around Rs 15 billion of fraudulent claims in Karachi, it has been estimated that the quantum of such illegal adjustments may cross Rs 50 billion. So far, the maximum amount has been detected in Karachi reflecting phenomenon of fraudulent sales tax adjustments at Karachi. The seriousness of the scam is evident from the fact that the involved amount may cross Rs 50 billion taking into account available sales tax record and expected detections in different cities.
Responding to a query, Director General I&I said that out of 60 writ petitions filed in Lahore High Court pertaining to inadmissible input tax adjustments, 35 petitions have been dismissed by the court, he added. It is important to mention that the organised group had misused the existing schemes for availing illegal input tax adjustments/refunds. The directorate has obtained complete details and profiles of the companies involved in the tax fraud. The agency has also evidence and record, which would form basis for arresting the culprits involved in the mega scam.
The detection of the scam disclosed that the agency had received a specific information regarding issuance of fake/flying invoices by some dummy/fictitious firms at Karachi. In the first phase, the directorate had cross checked the information with information collected/retrieved from other sources and succeeded in detecting 155 dummy/fictitious firms at Karachi who committed sales tax fraud to the tune of Rs 14.34 billion through issuing fake/flying invoices to more than 5000 registered persons most of which are located at Karachi.
The FBR has registered FIRs against the culprits and focused its efforts on detecting fraudsters, across the country, that are playing havoc with the system of input tax adjustments under Sales Tax regime by issuing fake/flying invoices. The agency has also initiated investigative audit and criminal proceedings against rest of the dummy firms, the cartels of fraudsters who are operating these firms and the recipients of fake/flying invoices so as to bring them to book and to recover the evaded amount of revenue.