Illegal input tax adjustments claims: FBR putting in place preventive mechanism

The Federal Board of Revenue is likely to introduce some major changes in the existing sales tax adjustment procedure by proposing amendments to the Sales Tax Act 1990 to put in place a preventive mechanism on illegal input tax adjustments claims, which caused huge loss to the national exchequer.
In this connection, the FBR on Friday issued an office order for constitution of a high-level committee headed by FBR Member Legal Muhammad Aqil Usman (BS-21 officer) to deal with the issue at policy level. This important task of drafting legislation for preventing illegal sales tax adjustments in future has been assigned to FBR Member Legal keeping in view his vast experience in legal matters, drafting of tax laws and dealing with tax frauds.
According to sources, the FBR has started developing a preventive system to check illegal sales tax adjustments in future. The committee has been given the task to finalise its recommendations and submit them to the Board by January 25, 2012. The seriousness of the issue is evident from the fact that the Director General Intelligence and Investigation (I&I) FBR has detected illegal adjustments to the tune of Rs 32.04 billion.
Aqil Usman along with his team of tax managers would scrutinise the existing data of illegal input tax adjustments claims detected by the Directorate General of Intelligence and Investigation FBR and field formations with reference to classes of business, area like Regional Tax Office (RTO)/person and quantum of evasion for trend analysis.
Secondly, the committee would further probe the modus operandi of fraudsters and present tactics (legal sales tax, income tax systems and connivance of the department, etc).Thirdly, the committee has been given the mandate to analyse the risk area relating to the existing procedures, processes and system involved in payment of input tax adjustment.
Fourthly, the committee has been given the assignment for conversion of sales tax input claims from invoice-based to payment based. This means that the tax adjustment would only be allowed after making payment to the relevant supplier after completion of the transaction. This would require amendment in section 7 of the Sales Tax Act 1990 as it would change procedure for claiming input tax adjustment, sources stated.
Fifthly, the committee would examine the existing legislation and required amendments in the law/rules with analysis of present litigation. Sixthly, the committee would propose systemic solution of problems ensuring uniformity of actions and other administrative measures needed to control illegal input tax adjustments claims. The committee headed by Aqil Usman has been constituted following decision of the last Chief Commissioner conference. Director General Intelligence and Investigation (I&I) FBR made a presentation on illegal input adjustments to the FBR and stated that total detection on the subject has been of Rs 32.04 billion.
The DG intelligence also highlighted the other steps and actions taken in this regard. The issue was discussed at length and a committee has been constituted to evaluate the issue of illegal input adjustments. A separate Office Order has been issued by the FBR for constitution of the committee, sources added.