Rs 14.34 billion sales tax scam unearthed

The Directorate General of Intelligence and Investigation Federal Board of Revenue (FBR) has unearthed a mega sales tax scam of Rs 14.34 billion at Karachi involving 155 dummy/fictitious firms/companies in issuance of fake/flying invoices to over 5,000 registered persons.
Sources told Business Recorder here on Tuesday that the fraudulent claims of the input tax adjustments involving billions of rupees through fake/flying sales tax invoices has been detected in Karachi following a recent scam in Lahore. An organised group has misused the existing schemes for availing illegal input tax adjustments/refunds. This is for the first time that the directorate has detected biggest sales tax fraud of over and above Rs 14 billion involving phenomenon of fake/flying invoices by 155 Karachi-based dummy firms.
The directorate has obtained complete details and profiles of the companies involved in the tax fraud and FIRs would shortly be registered against the firms. After detection of mega sales tax fraud at Lahore, the total quantum of sales tax fraud comes to the tune of around Rs 24 billion which is likely to increase in the coming days. The agency has evidence and record which would form basis for arresting the culprits involved in the mega scam.
This is the one of the major detections made by the agency in sales tax fraud. The agency has been focusing on fiscal frauds and organised financial crimes which remained undetected by the relevant tax departments or internal audit systems. The detection of the case clearly reflects that despite automation, e-filing, internal audit mechanism and system of taxpayer's audit, the incidence of fake/flying invoices is still taking place.
Without the connivance of the tax officers, it is not possible for the organized gangs to commit such mega scams. The Value Added Tax (VAT) related scams mostly involves phenomenon of "Missing Traders Fraud" where the entire supply chain has been involved in tax fraud. Moreover, fraudulent use of fake/flying invoices has again resurfaced following detections of these recent mega scams at Lahore and Karachi, sources said.
According to sources, investigation of the scam would be completed without causing any harassment to the business and trade. However, the directorate would complete investigation against the actual culprits involved in the scam, but ensure that no harassment would take place during the whole process of investigation.
The cultivation of informers is also one of the important assignments of the directorate to check such mega scams across the country, sources added. According to details Mr Mohammad Riaz, Director General Intelligence & Investigation, FBR, received a specific information regarding issuance of fake/flying invoices by some dummy/fictitious firms at Karachi.
The Directorate General cross checked the information with information collected/retrieved from other sources and succeeded in detecting 155 dummy/fictitious firms at Karachi who committed sales tax fraud to the tune of Rs 14.34 billion through issuing fake/flying invoices to more than 5000 registered persons most of whom are located at Karachi.
For the last few months, the Directorate General Intelligence and Investigation-FBR has focused its efforts to detect fraudsters, across the country, that are playing havoc with the system of input tax adjustments under Sales Tax regime by issuing fake/flying invoices. Earlier it has detected a Sales Tax fraud of Rs 9.8 billion at Lahore wherein 241 dummy/fictitious firms were involved in issuing fake/flying Sales Tax invoices.
It has also been observed that in most of the cases a chain of dummy firms start by claiming input tax on account of fictitious import Goods Declarations and then multiple layers of dummy / fictitious firms and ghost trail of fake invoices are created.
Reportedly, out of 155 dummy firms detected at Karachi, an FIR has already been lodged against 19 dummy firms and 09 persons have been arrested so far. The Directorate General Customs Intelligence is going to initiate investigative audit and criminal proceedings against rest of the dummy firms, the cartels of fraudsters who are operating these firms and the recipients of fake/flying invoices so as to bring them to book and to recover the evaded amount of revenue. It is first time in the history of the country that tax frauds of more than Rs 24 billion have been detected. According to sources so far detected amount may be a tip of an iceberg and it may increase as the investigation progresses, directorate added.
When contacted, a tax expert said that even e-filing system could be manipulated for committing sales tax fraud. For example, the user names and passwords could be obtained in case any person has email address, CNIC and business name of the entity. On the other hand, such frauds are apparently being committed by obtaining particulars of non-filers or dormant companies. At the same time, the particulars of companies which have closed their business but not obtained the de-registration certificates have also been used in such frauds.
In many cases, the actual owner of Sales Tax Registration Certificate (STRC) is not aware that his CNIC and STRN was being misused by the unscrupulous elements for committing tax fraud. In other cases, the organised gangs obtain details of the users' names and passwords of persistent non-filers to commit tax fraud.