ISLAMABAD: Further investigation is under way to uncover additional information and the potential involvement of other entities in the solar panel sector following the detection of overinvoicing of Rs69.5 billion in imports of solar from 2017 to 2022.

An official in the Finance Ministry, when asked, said that as per the Federal Board of Revenue (FBR), further investigation is currently under way to uncover additional information and potential involvement of other entities in the solar panel.

He further stated that solar panels have emerged as a high-risk item over the past few years for over-invoicing and trade-based money laundering (TBML) owing to their duty, tax-free import status, and the absence of sales tax on local supply.

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He added that between 2017 and 2022, there has been a massive increase in solar panel imports accompanied by the emergence of shell, dummy companies exploiting duty, tax-free imports for illicit financial activities.

In October 2022, the FBR initiated a comprehensive audit of solar panel importers and identified over-invoicing in 6,232 goods declarations (GDs) of 63 importers involving over-invoicing of Rs69.5 billion, official documents on account of massive money laundering by the solar panel importers reveal.

As a result of the audit, two FIRs have recently been lodged against M/s Bright Star Business Solution (Pvt) Limited and M/s Moonlight Traders (SMC) Pvt Limited.

These two importers were involved in over-invoicing, obstruction to audit and using illicit funds for imports and had transferred a staggering amount of Rs72.83 billion out of Pakistan in connection with solar panel imports during fiscal years, 2017-22. The combined over-invoicing in 2,718 import GDs amounted to Rs37.76 billion, with imported values being abnormally high.

Sales tax declarations further revealed that the solar panels, initially imported at Rs72. 83 billion, were sold locally for a significantly lower value of Rs45.61 billion.

There is also a need for an in-depth probe as to how commercial banks allowed such fictitious companies to transfer colossal funds without carrying out due diligence and KYC (know your customer) risk ratings that resulted into the transfer of Rs72.86 billion out of Pakistan in violation of the State Bank of Pakistan’s regulations and Framework for Managing Risk for TBML and Terror Financing for compliance, however, it is apparent that these were not applied while dealing with fictitious solar panel clients in year 2020-21.

The two importers transferred import remittances of Rs20.4 billion out of Pakistan while filing nil income tax returns, which substantiates the illegitimacy of the funds.

Data scrutiny has also revealed a fiscal fraud phenomenon in which solar panels were imported from China, but import remittances were transferred to third countries (especially the UAE and Singapore) through the use of commercial invoices issued by the UAE and Singapore-based companies.

On the GDs and BLs, foreign exporters of solar panels were mentioned to be of China and goods were also shipped from China.

Contrarily, on the same commercial invoices, the foreign exporters were mentioned to be of Dubai or other countries. Audit findings highlight the urgent need for enhanced monitoring and regulatory measures on the part of commercial banks to counter over-invoicing, TBML, and illicit financial flows.

Copyright Business Recorder, 2023