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ISLAMABAD: A key recommendation of the Federal Tax Ombudsman (FTO) remained unimplemented by the Federal Board of Revenue (FBR) to proceed against tax employees, particularly those in higher ranks, found involved in perpetration of fraud.

In a past order, the FTO had observed that the Pakistan Revenue Automation Limited (Pral) and Intelligence and Investigation (I&I) appear to have failed to devise an effective automated online system for registered sales tax persons.

Complicity and collusion of rogue tax employees with outside criminal elements is also not ruled out.

The FTO had recommended restructuring of the Pral transforming them into proactive agents of sales tax fraud prevention, and detection, and set up a task force to investigate all aspects of sales tax fraud.

To proceed against tax employees found involved in perpetration of fraud, particularly those in higher ranks.

The FTO has given these landmark instructions in a public interest Complaint No 390, Waheed Shahzad Butt versus Secretary Revenue Division.

So far, the FBR had neither preferred representation before the president of Pakistan nor any review has been filed before the FTO for reversal of findings/recommendations, however, despite lapse of reasonable time implementation on the crucial recommendations issued by the FTO remained unimplemented and no action has been taken against any senior official.

The FTO has asked the FBR to set up a task force to investigate all aspects of sales tax fraud and propose effective countermeasures.

The board has also been asked to review investigation and intelligence staffing policy and ensure that only highly qualified professionals with demonstrated expertise in uncovering cases of online crime could be assigned key investigative roles.

During the investigation, the FTO found that sales tax fraudsters in Pakistan have become adept at targeting the online system of claiming input tax credit.

Lack of sufficient pre-registration checks is a critical reason why criminal elements get so many dummy entities registered with relative ease.

The complainant further pointed out that it is not a simple case of hacking into a system.

The deliberate creation of dummy entities, for instance, illustrates that all this cannot happen without insiders’ involvement.

According to the FTO decision, when confronted, both the PRAL and Investigation and Intelligence responded to the points raised by the complainant.

It claimed to have created the right tools to detect tax fraud within the e-FBR system.

Downplaying the complainant’s suspicions of the Pral’s involvement in aiding and abetting criminal elements in sales tax fraud, it was pointed out that the PRAL was only a technology provider and a responder to departmental requirements by design, implementation and maintaining e-systems according to given specifications. It had no direct role in the day-to-day working of field formations.

Investigation and Intelligence also did not provide any insight on how the fraud could have been perpetrated on such a scale without access to passwords, pin codes and user IDs that are created and maintained by the Pral, the FTO order added.

Copyright Business Recorder, 2021

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