Tax frauds: FBR implements new preventive system
ISLAMABAD: The Federal Board of Revenue (FBR) for the first time implemented a new preventive system, which has enabled the tax officials to stop processing suspected refund claims prior to happening of tax frauds/financial crime-unique concept of conveying tax officials to save revenue plunder.
Sources told Business Recorder here on Friday that a new concept has been introduced in Pakistan to check organised tax evasion, mega tax frauds, fraudulent sales tax refunds/illegal tax adjustments and financial crimes prior to their happening, cautioning the tax officials in the filed formations to remain vigilant before issuance of refunds etc in suspected cases for preventing huge loss to the national exchequer.
At present, all investigating agencies and inspection or audit authorities start investigation of organised crimes or mega tax scams after the financial bungling, causing huge loss to the national kitty. In all cases of tax fraud or evasion, it has been witnessed that there is no system to block such crimes. Once huge revenue loss is caused to the national exchequer all investigating agencies jump in to recover the amount pocketed through unfair means by fraudulent elements. Agencies like National Accountability Bureau (NAB), Federal Investigation Agency (FIA) or FBR's internal audit systems start checking tax frauds after their happening when damage has already been done. However, there is no system available with any investigating agency to prevent the financial crime before its happening. The examples of mega tax frauds of Bawan Shah Group of Companies, M/s H Sheikh Noor-ud-Din & Sons, (Pvt) Ltd, Missing Containers Scam and illegal sales tax adjustments etc are clear examples where investigations were launched after the tax frauds and huge loss has been caused to the national exchequer. During investigation of mega tax scams, first an amount is detected. In the next stage, case established for recovery of the evaded amount. The actual recovery of the evaded amount is much less than the detection made in any mega tax scam. There is a huge gap between the detections and actual recovery made in any tax scam.
Sources said that any of the investigating agencies has not worked on the lines to place some checks for preventing the on-going crime. Unless investigators are not cleverer than the criminals, it would be almost impossible to check organised tax fraud and mega scams, causing hue revenue loss to the national kitty, sources said.
Introducing a new concept of preventive mechanism, Directorate General Intelligence and Investigation Inland Revenue (IR) FBR has implemented a system to stop a tax fraud before its happening in the field formations. The unique system would caution the tax officials to take steps before committing a tax fraud or issuance of fraudulent sales tax refund to the unscrupulous elements. The new system of the "Red Alerts" has been implemented in the field formations and so far 11 "Red Alerts" have been issued in suspected sales tax refund claims involving an amount of Rs 150 million. The agency has issued 11 "Red Alerts" to tax departments in Karachi and Sialkot to check the suspected crime to be taken place. Apparently, the number of "Red Alerts" and the suspected amount is not very high, but it is a good beginning to check crimes before happening. In 11 cases of "Red Alerts", the agency has directed the field formations to adopt a cautious approach before issuance of sales tax refunds in suspected cases. If sales tax refunds have been issued in such cases, the crime of obtaining fraudulent refund might have happened. However, issuance of "Red Alerts" has stopped the tax officials from further processing of such suspected claims based on the serious discrepancies detected in the sales tax refund claims. If the system starts working smoothly, it would prevent financial crimes and mega sales tax scams before taking place, saving valuable government revenue. The on-going crimes would be effectively checked through the newly implemented system of "Red Alerts" at the level of the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs).
If any tax official processes and issue the sales tax refund even after obtaining a "Red Alert", the same "Red Alert" should be considered as an FIR against the concerned tax official. The official has to justify the issuance of sales tax refund in suspected cases where glaring discrepancies in data has been detected, sources said.