To counter fake/flying invoices, the Federal Board of Revenue has identified high-risk areas in five leading export sectors ie textile, leather, surgical, carpets and sports goods and decided to analyse their monthly sales tax returns for underlining transactions where no sales tax payment has been made on supplies to unregistered persons.
Sources told Business Recorder on Wednesday that the FBR has issued instructions to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to immediately implement the recommendations of the RTO Faisalabad to check the growing phenomenon of fake/flying sales tax invoices. The FBR has identified risk-parameters in the export sectors including textile industry through analysis of Annex-A (purchases) and Annex-C (sales) of the sales tax returns form. The Board has apprehended that the phenomenon of fake/flying invoices appeared to be increasing as reflected in the alarming letter of the RTO Faisalabad and there is urgent need to analyse the data of export sectors particularly selective textile units, showing abnormal growth in 2011 as compared to same period last year.
Recently, RTO Faisalabad has issued show cause notices to 313 suppliers who made supplies of textile goods to unregistered persons involving non-payment of sales tax to the tune of Rs 63 million. As a result, similar cases could be detected in all LTUs and RTOs to check fake and flying invoices within the supply chain of textile sector.
According to sources, there is an immediate need for physical verification of stocks on selective basis in cases where the registered persons in five major export sectors remained dormant/non-filers in 2010, but suddenly started showing huge sales/ purchases in 2011, reflecting issuance of fake/flying invoices. At the same time, the field formations would also identify registered persons where tax profiles show abnormal growth in purchases in 2011 as compared to 2010. The LTUs/RTOs would also thoroughly analyse the monthly returns of the registered persons of five zero-rated sectors to identify such transactions where no tax payment has been made against supplies to unregistered persons.
The FBR instructions issued to the field formations here on Wednesday said that the RTO Faisalabad has compiled a report on the response of textile sector on reduced rate of sales tax. The exercises proposed by Chief Commissioner, RTO, Faisalabad in the aforesaid letter may be conducted at all RTOs/LTUs. Monthly progress report in respect of the aforesaid exercise may be furnished to the Board to have a complete picture of payment by textile sector at reduced rate of sales tax, FBR instructions added.
According to the letter of the RTO Faisalabad to the FBR, kind attention is invited to my (Muhammad Ashraf Khan Chief Commissioner) presentation made in the last Chief Commissioners' Conference. It was emphasised in this presentation that the tax behaviour of textile sector, as viewed from the perspective of RTO Faisalabad, is less than satisfactory vis-a-via the provisions of SRO.263(I)/2011 dated 01-04-2011, as amended vide SRO.323(I)/2011 dated 27-04-2011, SRO.1058(I)/2011 dated 23-11-2011 & SRO.1125(I)/2011 dated 31-12-2011. Not only a number of textile units have not discharged their liability of sales tax @ 4%, 6% and 5% on their supplies to unregistered persons but also illegally adjusted the output tax liability against their input tax.
RTO Faisalabad pointed out that the market feed back is that reportedly majority of registered units falling in the supply chain are avoiding this levy through flying invoices where the goods actually find way to the market to the unregistered persons but invoices are managed through the registered persons. This appears to be major cause of lesser collection from this levy.
As a result of analysis of the sales returns data, the RTO Faisalabad has issued show cause notices to 313 suppliers who made supplies of textile goods to unregistered persons involving non payment of sales tax of around Rs 63 million. In view of this position, it was urged upon the Chief Commissioners to monitor the purchases and sales of the registered persons as declared in their monthly sales tax returns and also carry out snap audit of the registered persons of five zero-rated sectors showing abnormal sales /purchases, besides educating the taxpayers about this levy through the respective Associations.
It is, however, pointed out that, perhaps inadvertently, this was important point of discussion of the conference and the Chairman's instructions thereon to focus on this area by all LTUs/RTOs has not been reflected in the decisions of the said Chief
Commissioners' Conference. Nevertheless, while RTO Faisalabad is actively working on the matter as per the said presentation, following recommendations are submitted to the Board for consideration and immediate necessary action by the field formations:
Firstly, the LTUs/RTOs to focus on: the registered persons who remained dormant/non-filers/nil/null filers in calendar year 2010 but started showing huge sales/ purchases in calendar year 2011 in a bid to issue flying invoices and showing stocks on paper only, Physical verification of stocks on selective basis of such persons may be made for taking action under section 25 and 36 of the Sales Tax Act, 1990 to discourage the phenomena of flying invoices.
Secondly, LTUs and RTOs should focus on the registered persons, particularly wholesalers, whose profiles show abnormal growth in purchases in 2011 vis-à-vis 2010.
Thirdly, the LTUs and RTOs should analyse the monthly returns of the registered persons of five zero-rated sectors to identify such transactions where no tax payment has been made against supplies to unregistered persons. In such cases, the recovery proceedings need to be initiated as per law, sources added.
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