AGP unearths malfeasance worth Rs418.436bn by FBR field formations

ISLAMABAD: The Auditor General of Pakistan (AGP) has unearthed irregularities to the tune of Rs418.436 billion committed by the Federal Board of Revenue’s field formations during 2020-21.

Out of audit observations of Rs418.436 billion, direct taxes irregularities amounted to Rs322.662 billion; indirect taxes Rs66.619 billion; customs Rs26.377 billion, and irregularities on account of FBR’s expenditure stood at Rs2.777 billion during the period under review.

According to the AGP’s latest audit report, there is a huge variation of Rs81 billion in tax collection figures between the FBR and that reported by the State Bank of Pakistan (SBP) for the period of 2020-21.

The said variation in figures may not present a true and fair picture of financial statements because the revenue receipt figures from the external sources, ie, the SBP was on the higher side.

As a result of the audit, a recovery of Rs418,436 million was in process during 2020-21.

On the other hand, Rs25,566 million has been actually recovered and verified by the Audit Department. Moreover, an amount of Rs37,662 million has also been recovered from January 2021 to December 2021.

There is also a difference of Rs6.98 billion in the refund payment figures reported by the FBR and those maintained by the SBP.

The AGP has recommended the FBR for reconciliation of data with the SBP for the period of 2020-21.

The AGP stated that the FBR obtained supplementary grants of Rs41,367.72 million, which included an amount of Rs40,000 million expended to pay refunds to the taxpayers. Audit observed with concern that the refund is a deduct receipt and its payment is required to be reduced from the overall collection of the FBR rather than obtaining the supplementary grants from the consolidated fund. By this arrangement, the FBR unlawfully managed to show net collection on the higher side, but when critically analysed, the distribution of the funds to the provinces was incorrectly allocated.

The past years' trend shows that the FBR has a tendency to lag behind the original target and therefore get the target revised to an amount likely to be achieved by the end of the financial year.

Key audit findings revealed less realisation of income tax due to non-finalisation of proceedings under the relevant head of Rs19,094.74 million.

Incorrect claim of tax credit of Rs11,672.79 million and incorrect adjustment of brought forward losses of Rs23,189.90 million.

The less levy of income tax due to allowing inadmissible expenses caused a revenue loss of Rs40,791.37 million.

The FBR failed to recover revenue loss due to the concealment of income or assets of Rs11,880.21 million.

Less realisation of sales tax due to non-apportionment/inadmissible adjustment of input tax caused a revenue loss of Rs9,428.45 million.

Loss of revenue due to non-collection of sales tax on taxable goods and services caused a revenue loss of Rs1,170.87 million.

The FBR has made excess payment of refunds of Rs856.69 million in excess of input tax actually consumed in supplies to the zero-rated goods.

The FBR failed to stop the under-valuation of the imported goods which resulted in revenue loss of Rs3,480.73 million.

The blockage of revenue due to non-disposal of confiscated goods caused a revenue loss of Rs6,818.99 million.

The inadmissible expenditure on account of pay and allowances caused a revenue loss of Rs117.68 million and irregular expenditure on account of splitting of purchases caused the revenue loss of Rs198.92 million.

The AGP has recommended FBR that there is a need to evolve a mechanism to collect information from various institutions to identify potential taxpayers on the basis of economic activity.

The FBR should document all economic activities and end preferential treatment given to different sectors. There is a need to integrate all supply chain data into the FBR Management Information System (MIS)/Tax Management System throughout the length and breadth of the country.

The FBR should develop and strengthen the control for proper assessment and realisation of government revenue; expedite digitalisation of all processes of tax management and finalise legal proceedings against the cases booked by the FBR through its NDB (National Data Bank) in a given timeframe and a mechanism for proper oversight of the FBR for reconciliation of cases by field offices.

The FBR should also ensure efficiency, tax and accountability in the FBR administration in order to broaden the tax base and initiate incentives to taxpayers in order to broaden the tax base and action be initiated against defaulters as well as strengthen the overall internal control environment of broadening the tax base (BTB) activity to enhance the tax base and revenue.

The AGP has regretted that no concrete steps were taken by the government/FBR to document the economy and gradually broaden the tax base by the inclusion of all informal sectors under the tax net.

The FBR also failed registration of persons having high economic activity liable to be registered under tax laws; digitalisation of the tax system was also slow and ineffective and non-initiation/finalisation of legal proceedings; non-pursuance of BTB cases booked by the FBR on high economic activity and by its field formations.

The internal controls environment of the BTB activities of the field formations were ineffective and inefficient, the AGP’s report added.

Copyright Business Recorder, 2022