Senior IR official speaks about enormity of challenge: Bogus refund mafia highly active in Karachi

A senior Inland Revenue official of Large Taxpayer Unit (LTU) Karachi has conveyed to the Federal Board of Revenue that bogus refund mafia has become extremely powerful in Karachi having no fear of accountability by any institution, anti-corruption department or government agency.
Sources told Business Recorder here on Monday that an Additional Commissioner LTU Karachi has exposed the details of bogus refund mafia in Karachi which has became very active in connivance of the tax officials. This is a first bold initiative taken by a senior official of LTU Karachi to share inside details of the bogus refund mafia. In a very emotional communication to the Board, he informed FBR that, "the impudent display of callousness is unprecedented in the history of FBR. Where despite specific observations of a fraud controlling organisation about some units to be fake, the officers not only ignored it with impunity but dared to issue further refunds.
How the concerned quarters should respond to such criminal, immoral and illegal behaviour needs no elaboration. However, this fact remains undisputed; the unholy hands of mafia are so long and strong that the fear of reprisal or accountability has vanished completely from the hearts and minds of officers working as their operatives. Moreover, it's the blatant violation of the recent judgement of Supreme Court of Pakistan reminding of civil servants of Pakistan of their legal obligations in the instances of illegal (unwritten) orders from higher officers, Additional Commissioner LTU Karachi added.
Additional Commissioner LTU Karachi further highlighted that it absolutely necessary in the greater national interest that I should highlight all information related to a fake refund mafia, actively operational in RTO Karachi. This is a scam of gigantic proportions involving a well organised and well connected mafia. This mafia is involved in issuance of fake refunds with criminal connivance of some of the officers of the department, especially in textile/garment sector, causing colossal loss to the national exchequer. This mafia is now so strong and well connected that reportedly they influence/maneuver the posting of officers of their choice even at the highest level. Any officer (the Stature does not matter), that the mafia considers as hindrance in their sinister designs is either kicked out of his/her office, whether in RTO Karachi, FBR (HQ), Investigation and Intelligence(IR) or any subsidiary office and are dumped in the legal/ IP division or TFD, eternal dumping grounds for unwanted officers.
Previously, such mafia used to operate silently and discreetly but now the situation has worsened to the extent that their operatives openly threaten the officers, in case they feel any kind of hindrance in their smooth sailing. Deplorably, these operatives are none other than some distinguished and well-known officers of the department. They do not even hesitate to take names of high officials of department, allegedly, to be on their side. Now that they have made examples of some of even very senior honest officers causing hindrances; their threats are not taken lightly by the rest and the whole paraphernalia has swiftly been re-aligned to ensure their smooth sailing, Additional Commissioner LTU Karachi said.
Realising the gravity of the situation and pursuant to the directions issued by chairman FBR, an internal control mechanism was developed at RTO Karachi. Dr Shamsul Hadi, an officer with undisputed integrity, was tasked to analyse the registration profiles and monthly sales tax returns of suspected units based on parameters laid down by the Board. Dedicated support staff was provided to ensure swift and credible results. This special cell of dedicated officers did a commendable job in limited time, sources referred to sailing, Additional Commissioner LTU Karachi.
Additional Commissioner LTU Karachi said that after exhaustive deliberations it was inferred that the mafia was capitalising on the loopholes of the Electronic Refund System (ERS) of FBR and system-based software such as Starr and Crest. Which remain restricted to single stage verification ie matches the claimed input with declaration of the first stage suppliers in their monthly sales tax returns. Gauging the relevance of the raw material (input) with product (output) stays beyond the scope of the system. Determining the genuineness of existence and in case of some dummy existence, the capacity to manufacture the declared quantum of products of such ghost rider units is something unexpected of the system. Keeping in view the above facts, a comprehensive SOP was devised to nip the evil in the bud. Indeed a panacea.
Salient features of SOP revealed that while processing the sales tax refund claim the Starr/Crest system shall not be made the only yardstick for ensuring genuineness, but attention to other factors may also be given consideration such as percentage of input tax goods consumed in goods being supplied, refund on local sales, going concern concept in terms of accounting principles, rationalising the utility consumption with declared production, relevance of input tax goods with goods being manufactured, genuineness of suppliers of taxable as well as zero rated goods, sales tax payments in terms of section 8(1). In case any discrepancy or suspicious issue needing further inquiry or investigation is observed, that may be pointed out before processing of refund claim.
The SOP said that in cases where refund is claimed on local sales, the genuineness of the buyers in terms of their existence and capacity with relation to declared turnover is also to be checked. Current status from "Active Taxpayer List" may also be checked. The value of supply of these zero rated goods may also be given attention and checked that the value has not been inflated to enhance the refund claim and value is according to the provisions of the clause (46) read with clause (19) of section 2 of the Sales Tax Act, 1990.
The SOP pointed out that every refund claim of Rs 1 million and above shall be sent for approval to the concerned Additional Commissioner-IR before sanctioning in terms of Board's letter C. No 1(16)STP/96 dated 16-04-2005. No claim involving sanctioning amount more than 1 million can be sanctioned without prior approval of Additional Commissioner of the range.
The concerned Additional Commissioner-IR shall pay special attention to new refund claimants and the claimants who are claiming refunds on local sales. In these cases existence of the refund claimant unit along with its capacity in relation to declared turnover may be got verified and report thereof, countersigned by concerned AC/DC, be attached with every refund claim file of the claimant, SOP said.
The SOP further said that the concerned Additional Commissioner-IR shall closely monitor all refunds processed and sanctioned through local office as well as RMS and to ensure that all suspicious refund claims which require further inquiry are properly audited/investigated in terms of Rule 29(4) of the Sales Tax Rules, 2006 before payment of refund. In case of any major discrepancy in refunds sanctioned through RMS the case may be reported immediately to the competent authority for withholding the cheque of sanctioned refund till the enquiry is completed, SOP added.
Additional Commissioner LTU Karachi added that the sole purpose of this investigation is to bring into knowledge of higher authorities, the aforementioned situation for taking urgent corrective measures in the larger public interest in the light of the recent judgement pronounced by Supreme Court of Pakistan. "I am also well aware of the possible repercussions of sending this report to FBR in writing of the aforementioned mafia and their mentors/operatives and find myself well prepared for that as per my family traditions. At this point and time, I believe, remaining silent/ indifferent to the situation amounts to abetting the mafia," Sajjad Akbar Khan added.