KPT berths repair/reconstruction: Rs 109 million duty evasion detected

Evasion of customs duty to the extent of over Rs 109 million in the reconstruction of berths 10 to 14 and Ship Repair Berths (SRBs) of East Wharf at a cost of Rs 5,511,426,875 has been detected by the Director Intelligence, Directorate General Intelligence and Investigation, Federal Board of Revenue (FBR).
Karachi Port Trust (KPT) had invited tenders from reputed Pakistani and international contracting firms, and the Board of Trustees of KPT had accepted the tender submitted by Ssangyong & Usmani joint venture on March 24, 2007 at the above cost.
The Directorate had forwarded its findings to the Member (Customs) FBR on October 27, 2010. The said contractor ie Ssangyong & Usmani had submitted an application to the Board of Investment about issuance of a letter to FBR for getting benefit of exemption of customs duty and sales tax under SRO 575(I)/2006 dated 5.6.2006 on import of capital goods.
According to Director Intelligence, the said exemption is available to investors who have been investing in 'infrastructure projects' and fulfilling the requirements verified by the Board of Investment. The recommendation/approval letter of Board of Investment to FBR for invoking SRO 575(I)/2006 was issued accordingly.
The concerned authority of FBR simply forwarded the letter of Board of Investment without any findings to the Collector Appraisement Karachi for taking necessary action in terms of authoritative procedure envisaged under the said SRO. The appraisement collectorate extended desired exemptions to Ssangyong & Usmani from levy of customs duty/sales tax and income tax. The PRAL data showed that so far 12 GDs have already been filed by the said contractor in which exemption under aforesaid SRO has been given and thus the exempted amounts of customs duty, sales tax and income tax is Rs 40,667,124, Rs 55,307,286, and Rs 13,419,004, respectively.
In the brief facts of the case Director Intelligence has further said that complaint was received from Syed Arshad Ali in which it is contested that the said contractor is not the investor and, therefore, the exemption available to the investor of infrastructure project cannot be applied on the said contractor and the exemption of customs duty, sales tax and income tax under the said SRO is altogether illegal.
In order to verify contents of the complaint, the complainant was contacted who provided the details in his possession. Based on this information, Syed Adil Gilani, Chairman, Transparency International Pakistan, in a letter sent on July 8, 2011 to the General Manager, P&D Division, KPT, has pointed out that the duty was evaded in the import of steel tie roads for the construction of berths.
In the copy of his letter sent to Federal Tax Ombudsman (FTO), he requested him to take suo motu action to examine all cases of such fraudulent exemption with the approval of Board of Investment (BOI), Engineering Development Board (EDB), and FBR given under SRO 575(I) 2006 since June 2006 to June 2011, in order to recover billions of rupees tax evasion in six years.
Transparency International Pakistan assumed that the contractors Ssangyong & Usmani had signed the 'Integrity Pact' with KPT, as required under the Public Procurement Rules 2007, Rule No 7 and made part of the contract agreement, where following commitments were made by the contractors:
" Without limiting the generality of the foregoing, [the seller/supplier/contractor] represents and warrants that it has fully declared the brokerage, commission, fees, etc, paid or payable to anyone and not given or agreed to give and shall not give or agree to give to anyone within or outside Pakistan either directly or indirectly through any natural or juridical person, including its affiliate, agent, associate, broker, consultant, director, promoter, shareholder, sponsor or subsidiary, any commission, gratification, briber, finder's fee or kickback, whether described as consultation fee or otherwise, with the object of obtaining or including the procurement of a contract, right, interest, privilege or other obligation or benefit in whatsoever form from Government of Pakistan, except that which has been expressly declared pursuant thereto," etc.
Chairman, Transparency International Pakistan, has also mentioned that one part-consignment of tie rods is ceased by customs Karachi port since February 2011. Adil said that this complaint if proved to be correct, is a corrupt business practice under Public Procurement Rules 2004, Rule 2 (g), and may result in the following actions by KPT.
--- Impose 10 times fine on Rs 109 million, ie Rs 109 billion on contractors.
--- Terminate the contract.
--- Recover from the contractor any loss or damage to the employer as a result of such termination or of any other corrupt business practices of the contractor or any of his sub-contractors, agents or servants.
--- Proceed action on black-listing the contractors under Public Procurement Rule No 19, and
--- Report to National Accountability Bureau (NAB) for criminal action against the contractors.
Director Intelligence after describing brief facts of the case and analysis and examination of the record has made following recommendations:
--- Since Ssangyong Usmani contractor is not an investor, therefore, it is suggested that the total amount of taxes evaded by the said business amounting to Rs 109,393,414 may be recovered and the collector appraisement Karachi may be advised accordingly for swift recovery.
--- KPT can be asked to withhold payment to the said contractor and deposit the amount of evaded taxes to the national exchequer.
--- The gross negligence and lack of transparency of Board of Investment are quite visible in this case and, therefore, its exclusive and absolute authority to determine nature of investment may be checked and certain amendments may be made in the SRO 575(I) 2006 about the re-examination and analysis of documents related to any case recommended for exemption under SRO 575(I) 2006 by the responsible officer of FBR.
--- The concerned section of FBR, instead of simply forwarding such letters to field formations, may have made more explicit directions.
--- Recommendation/approval letters written by the Board of Investment to FBR for tax relief, during the last three years may be examined thoroughly to unearth tax evasion cases of the same nature as discussed in the case of Ssangyong & Usmani.
--- Ssangyong & Usmani, which fraudulently declared itself as investors when they are actually contractors, should be blacklisted by the KPT.