Audit officials of ST dept accused of misusing concept of ‘sister companies’

LAHORE: Audit wing officials of the sales tax department are allegedly misusing the concept of sister companies while objecting to input sales tax adjustment claims between suppliers and buyers.

According to the sources, the department pays no heed to establish relationship of sister companies before holding them responsible for securing input sales tax adjustment on the basis of manipulated and unverified invoices.

They said the tax officials do not substantiate their stance on definite findings on the crucial allegation with regard to the relationship as sister companies between taxpayers and the whole exercise, in most of the cases, is based upon mere observation that the invoices are not authenticated by proper sales tax office.

It may be noted that the law desires the establishment of the fact that the taxpayers are either sister companies or a subsidiary of the other but no tangible evidence is produced while challenging the transactions by the audit officials.

The relevant record includes obtaining evidence from the Securities and Exchange Commission of Pakistan (SECP) in relation to the incorporation and substratum of both companies. Also, there should be a clear cut verification of holding company of the alleged subsidiary company.

Since the department is found least bothered about establishing the relationship and producing relevant evidence, therefore, the relevant appellate forums reject their notices, claiming that taxpayers are either a subsidiary or a holding company of each other in the absence of any material on record or concrete evidence produced by the department to substantiate the principle ground of sister concern relationship.

The sources said a company is deemed to be a subsidiary company of another, i.e., the holding company, if the latter holds a majority of its voting rights and a member of it besides having the right to appoint or remove a majority of board of directors. Similarly, they added, a company is also deemed to be a subsidiary company of another if it qualifies as a subsidiary of a subsidiary of a holding company.

Copyright Business Recorder, 2023