WEDNESDAY AUGUST 24: FBR, experts divided over mammoth figure: Rs 80-100 billion illegal input tax adjustment claims

ISLAMABAD: The Federal Board of Revenue (FBR) and tax experts are divided over the huge figure of Rs 80-100 billion illegal input tax adjustments, claimed by registered persons. Sources told Business Recorder here on Tuesday that the FBR will soon convene a meeting for plugging the loopholes in the sales tax regime, particularly illegal input adjustment.
During the last Board-in-Council meeting, the tax authorities reviewed the cases of illegal input adjustment of sales tax. The tax managers discussed the issue and the decision was evolved that a dedicated team of auditors should be placed at the FBR (HQ) who should work out the gaps to determine the actual figures of the illegal tax adjustments. These gaps are to be communicated to the field formations so that data cross matching is done with optimum effectiveness and accuracy, Board-in-Council added.
When contacted, a tax official said that the volume of illegal tax adjustments is very high and it could only be detected through the process of chain audit of the entire supply chain. On the other hand, tax experts were of the view that the FBR's apprehensions of around Rs 80-100 billion illegal input tax adjustments is not correct because the electronic system is unable to properly cross verify the data.
The figure of Rs 80-100 billion is too high because the electronic system is not properly adopted by either side. Both the Board and taxpayer are not used to manage minor data feeding outflows arising out of it. The cross verification of input and output requires proper handling and supervision to ascertain the actual amount of inadmissible input tax adjustments. The cross verification of input and output of buyers and sellers data has not been done properly in the absence of incomplete data maintained electronically they said.
The government has already framed cases of illegal adjustments against some big companies, but these cases are not sustainable in courts and tribunals. The cases are mainly based on the electronic systematic problems.
Experts said that in case of banks, they are not required under special procedure to declare each and every entry on which tax has been charged separately. Resultantly, it is not possible to cross verify this information electrically. Similarly, telecom companies do not give each and every detail of their customers due to which the cross verification is not possible in certain cases. A number of audits have been conducted in the field formations during 2010. However, the field audits have not detected any major case in this regard.
It is important to mention that the FBR had directed the field formations to register FIRs against persons involved in claiming illegal input tax adjustment to evade tax.
According to FBR instructions, the FBR has devised a strategy to plug in the illegal sales tax adjustments. FBR Chairman has advised the Chief Commissioners of the LTUs and the RTOs to strictly monitor the sales tax regime so as to plug illegal inputs through use of technology and registration of the FIRs against persons making such adjustments and frauds.
The FBR decided to investigate and verify the amount of Rs 84 billion inadmissible tax adjustments claimed by the registered persons. The figure of Rs 84 billion is authentic where illegal adjustments have been claimed despite expiry of six months period as admissible under the law.
The taxpayers are eligible to claim tax adjustments within a period of six months under section 7 of the Sales Tax Act. The cases of Rs 84 billion are related to the period where taxpayers have claimed input tax adjustment beyond six months period. Thus, the Board-in-Council meeting decided to thoroughly investigate these cases for which the FBR Inland Revenue Wing and the FBR Taxpayer Audit Wing would jointly work to verify the amount in cities where higher amount of inadmissible tax adjustments have been detected.