PESHAWAR: The Auditor General of Pakistan (AGP) has detected losses to the tune of Rs 1191.28 million in various heads in the accounts of Khyber Pakhtunkhwa Revenue Authority (KPRA) during financial year 2018-19 and directed their recovery, said Audit Report on the accounts of Revenue Receipts of the government of Khyber Pakhtunkhwa.
The audit report has already been presented in the provincial assembly, wherein the Speaker has referred it to the Public Accounts Committee of the house for detailed deliberations.
In first major case a loss amounting to Rs 445.96 million has occurred due to non-imposition of penalty on non-late-filers of monthly returns for sales tax on services.
Under Section 52 (1) of the KP Finance Act, 2013, every registered persons is bound to furnish, not later than the due date, a true, correct and properly filled-up return in the prescribed form and under Section 64 of the said Act, any person failed in furnishing the return within due date is liable to a penalty.
During the audit of the accounts record of KPRA for financial year 2017-18 and 2018-19, it was revealed that the authority did not initiate any action against 25,830 registered persons, who did not file their returns or filed after the due date i.e. 15th day of the month following the end of the tax period as required under ibid Act that resulted in loss of Rs.445.96 million to the account of penalty.
The audit report has attributed the occurrence to weak controls and in-efficiency of the department. The matter was reported to the department twice in 2017 and 2019 and the management replied that the office is agreed in principals with the point of view of audit subject to the verifiability of the amount detected.
Legal proceedings for recovery of penalty were being initiated and assured the sharing of progress in due course of time. Audit requested the department for convening a meeting of the Departmental Audit Committee (DAC), but it’s convened till finalization of the concerned audit report.
Audit has recommended action towards imposition and recovery of penalty from the non-late filers.
In second case, a loss of revenue amounting to Rs 421.78 million was occurred due to non-recovery of arrears of Sales Tax on Services. According to Section 87 (1) of the KP Finance Act, 2013, where any amount of the tax is de from any person, an officer of the authority not below the rank of Assistant Collector may recover the amount according to ;provisions ‘a’ to ‘g’ of the concerned section.
During audit of the accounts record of KPRA for financial year 2018-19 it was noticed that 142 cases involving short payment of Sales Tax on services amounting to Rs.421.78 million was detected during internal audit. The amount was recoverable from the service providers in the light of assessment orders passed by the authority. However, this established amount of tax was not recovered from the defaulters.
Audit has attributed the occurrence of loss due to weak controls and in-efficiency of the department. The non-recovery of Sales Tax resulted in loss to the government exchequer.
The irregularity was reported to the department in October 2019. Management stated that detail reply would be submitted after perusal of record on case to case basis.
Audit requested the department on 2nd December 2019 for holding of the DAC meeting; however, the meeting was not convened till finalization of the final report. Audit has recommended expeditious recovery of the government revenue.
In third case, a loss of government revenue to the tune of Rs 194.89 million was occurred due to availing of inadmissible exemption from sales tax on services.
Under Section 26 (1) of Khyber Pakhtunkhwa Finance Act 2014, Sales Tax on services was leviable on the value of taxable services at the rate of 19.50 percent. Further, under Section 28 ibid, the authority, may, with the approval of the government and subject to such conditions, limitations or restrictions as it may impose, by notification in the official Gazette, exempt taxable services from the whole or any part of the tax.
During the audit of the accounts record of KPRA for financial year 2018-19, it was noticed that M/S Wateen Telecom Limited (K-2397565-2) has provided services for restoration of telephone connection falling under classification of first schedule which was chargeable to Sales Tax at the rate of 19.50% of the value of taxable services as prescribed under Second Schedule to the KP Finance Act 2013. However, in certain sale transactions, Sales Tax had not been worked out by declaring exemption from Sales Tax to the tone of Rs.194.89 million without any explicit notification during the years 2014-19.
Audit has attributed the occurrence of loss due to weak controls and in-efficiency of the department. The inadmissible exemption had resulted in loss to the government exchequer.
The irregularity was reported to the department in October 2019 and the management replied that the authority had already taken up the issue of declaration of exempt sales by M/S Wateen Telecom in their returns adding that further detail reply would be submitted after taking point of view of tax payer and perusal of record.
Audit requested the department on 2nd December 2019 for holding of the DAC meeting, however, the meeting was convened till finalization of the final audit report. So, the audit has recommended expeditious recovery of government revenue from the concerned. Another loss of Rs 50.76 million to the government revenue was occurred due to inadmissible adjustment of Credit Notes.
During the audit of the accounts of the authority for financial year 2018-19, it was noticed that contrary to the KPRA Sales Tax on Services Regulations 2017 M/S CNPC (Chuanqing Drilling Company Limited (Reg. No.K1548566-8) issued Credit Notes against the services provided to M/S Oil & Gas Development Company Limited (Reg No. K0787223-2) and reduced the output tax accordingly. Scrutiny of the returns of M/S oil & Gas Development Company Limited revealed that the buyer had not issued the Debit Notes with reference to the Credit Notes issued by the service provider as an acknowledgement of the receipt of the same mentioning therein the same details as are given in the corresponding Credit Notes. The issue caused inadmissible adjustment of Credit Notes amounting to Rs.50.76 million.
The loss occurred due to weak controls and in-efficiency of the department and inadmissible adjustment of Credit Notes resulted in loss of government revenue.
The irregularity was reported to the department in October 2019 and the management replied that invoices mentioned in the para pertain to input adjustment on account of purchase of goods from Pakistan State Oil Limited. PSO submit the sales tax return for goods to FBR and not to KPRA. Therefore, the same invoices cannot be reflected in the returns submitted by PSO for sale of services.
The response of the management was found irrelevant as in this case credit notes on services had been adjusted from the output tax by M/S CNPC Chuanqing Drilling Company Limited for which no debit notes for services were noticed in returns of M/S Oil & Gas Development Company Limited.
Audit requested the department on 2nd December 2019 for holding of the DAC meeting, however, the meeting was not convened till finalization of the final report. So, the audit has directed the recovery of the pointed out government revenue.
Another loss to tone of Rs.20.93 million has occurred due to non-imposition of default surcharge on the late payment of sales tax on services. During record for the financial year 2017-18 and 2018-19, in the office of KPRA, it was noticed that no action was taken by the concerned authorities for imposition and recovery of default surcharge from 304 registered persons on late payment of sales tax on services.
The audit has once again attributed the loss to weak controls and in-efficiency of the management of the department. The irregularity was reported to the department, but no reply was submitted. Furthermore, the department has also failed in convening the meeting of the DAC. So, audit has recommended recovery of the default surcharge on the payment of sales tax.
The audit has also directed for recoveries of losses of Rs.7.27 million, Rs.4.05 million, Rs 3.59 million, Rs.2.76 million and Rs.1.63 million in various heads from various registered services providers in various heads.
Copyright Business Recorder, 2022
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