Manufacturing units, industrial undertakings: FBR initiates probe into wrongly claimed tax credit

ISLAMABAD: The Federal Board of Revenue (FBR) has started an investigation against the manufacturing units and industrial undertakings, which wrongly claimed tax credit under Section 65-D of the Income Tax Ordinance 2001.

In this regard, the FBR on Friday ordered detailed verification of records of companies and industrial undertakings, which availed tax credit under Section 65-D of the Income Tax Ordinance 2001 and caused massive revenue loss.

According to the FBR's Tax Expenditure Report-2021, the tax credit under Section 65D availed by the newly-established industrial undertakings, corporate industrial units (including corporate dairy farming) caused revenue loss of over Rs5 billion during 2019-20 to the national kitty.

There may also be revenue loss due to misuse of tax expenditures through potential fraud.

For instance, during compilation of data for this report, it was observed that many misuses of exemption claims under section 65D of the ITO- 2001 by industrial undertakings have been detected in recent years, where an existing industrial undertaking takes the guise of a new industrial undertaking to claim tax credit, Tax Expenditure Report-2021 added.

The FBR's Tax Expenditure Report-2021 clearly talked about frauds committed by the industrial undertakings through misuses of exemption claims under section 65D of the Income Tax Ordinance 2001. However, the FBR has now started the investigation after Public Accounts Committee (PAC) referred two tax fraud cases involving over Rs6 billion to the National Accountability Bureau (NAB) for investigation of tax evasion and illegal exemptions/tax credit/concessions availed by two companies.

The FBR, on Friday, issued a letter to its investigators, which revealed that it has come to the notice in recent meetings of the Public Accounts Committee (PAC) of the National Assembly that certain taxpayers (class of taxpayers) have wrongly claimed tax credit as provided in section 65-D of the Income Tax Ordinance 2001.

Further, the statutory conditions were not fulfilled or necessary documents not obtained in respect of the manufacturing setup.

That besides a misleading claim of avoidance of incidence of taxation, an incorrect status of manufacturer was adopted, the FBR said.

In some cases, taxpayers might have claimed the said tax credit as amount refundable to them whereas honourable apex courts have interpreted that, tax credits do not fall into the category of tax payments hence not refundable, the FBR maintained.

The FBR's investigators are requested to inspect some material claims besides the revenue impact whether the said tax credit was granted to taxpayers after due diligence fulfilling all the legal and procedural requirements, the FBR's instructions added.

Copyright Business Recorder, 2021