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Tax-evasion inquiries against shopping malls, housing societies initiated

KARACHI: The Directorate of Intelligence & Investigation (DI&I), IR, Karachi, has initiated tax evasion...
08 Sep 2020

KARACHI: The Directorate of Intelligence & Investigation (DI&I), IR, Karachi, has initiated tax evasion inquiries against all the major shopping malls in the city and some notable housing societies to plug revenue leakages against bulk supply of power and gas utilities.

According to details, all the major shopping malls and notable housing societies of Karachi are now on the radar of the Directorate as they - in connivance with power and gas utilities -- are allegedly involved in massive tax evasions.

It further said that the power utility instead of providing electricity directly to each consumer of these malls and housing societies used to provide bulk power supply only to the malls and residential societies. Similarly, the gas utility is also doing the same.

Presently, these power and gas companies charge sales tax, and in case of electricity supply advance income tax on the basis of their meters installed against utility supply to the extent of supplying it to the shopping malls and societies.

Whereas these malls and societies further supply electricity and gas to their tenants/consumers and charge them additional amounts on supply of electricity and gas on which the taxes on the supply of utilities is not disclosed by them in the sales tax returns.

During the inquiry, it transpired that almost none of the tenants/retailers at these big shopping malls are registered under the sales tax, and, hence, these shopping malls, in addition to the 17% sales tax, are also required to collect further tax at 3% from the retailers and deposit it with the national exchequer.

It was also revealed that most of the shopping malls charge their tenants/retailers Rs30 to Rs38 per unit. The billing and further supply of electricity for commercial purposes is subject to sales tax and advance income tax.

As per Section 3(1) and 3(9) of the Sales Tax Act 1990, the person issuing bills and collecting electricity charges is required to pay sales tax with their returns. Beside these, the shopping malls issuing bills are also liable to pay an advance income tax at the rate of 12% while supplying electricity to the retailers as per Section 235 of the Income Tax Ordinance, 2001.

These shopping malls are presently filing "Nil" returns and also not deducting advance income tax on the value of electricity supplied. Thus these shopping malls are not collecting and depositing further tax, value addition tax and minimum tax at 7.5% from unregistered retailers having monthly bills of more than Rs20,000.

Moreover, these malls are also making self-generation through gas in case of power breakdowns so the sales tax is required to be paid on the supply of self-generated electricity to retailers along with advance income tax.

In this connection, the Directorate has sent notices to the shopping malls of which the amount of revenue leakage of only three shopping malls is accumulated to over Rs300 million to whom show-cause notices have been issued.

This practice of tax evasion in the garb of bulk supply is going on in shopping malls across the country, the Directorate officials said and added that similar revenue leakage is also witnessed on supply of electricity and gas to the domestic and commercial consumers by the housing societies.

Copyright Business Recorder, 2020