Remaining period of 2022-23: FBR can overcome shortfall through recovery steps: FTO

ISLAMABAD: The Federal Tax Ombudsman (FTO) on Friday strongly recommended the Federal Board of Revenue (FBR) to overcome revenue shortfall of Rs 278 billion in 2022-23 by easily recovering evaded sales tax of around Rs 6 billion from steel melters/re-rollers, recovery from other mega scams and expedite pending cases in courts/tribunals.

Sharing a historic order of the FTO against mega scam of steel sector, FTO Dr Asif Mahmood Jah told Business Recorder at the FTO Headquarters on Friday that the FBR can overcome massive shortfall in the remaining period of 2022-23 through recovery measures. This requires immediate recovery of nearly Rs 6 billion from steel melters/re-rollers. The recovery from other mega scams and cases pending in high courts/tribunals would considerably reduce the shortfall in tax collection.

In case of mega scam of steel melters/re-rollers, the recoverable amount of Rs 6 billion is only related to Lahore. The inspection has also been completed in Gujranwala. The amount would also be recovered from cases in Islamabad after inspection.

The FTO while concluding an inspection activity under Section 17 of the FTO Ordinance, 2000 has recommended a feasible and conclusive way out to the FBR for affecting recoveries of evaded government revenue by way of misusing the Rule 3(A) of Rule 58H of Sales Tax Special Procedure Rule, 2007.

The above levied sales tax was collected through monthly electricity bills on the basis of consumption of electricity. However, subsequently, in the year 2014, sub Rule (3A) was inserted under Rule 58H of the above said Rules, with effect from 04.06.2014.

The purpose behind the above insertion of sub-Rule (3A) was primarily to bring in an ease and convenience in sales tax collection from this sector i.e. steel melters. As a corollary to above, the commissioners were empowered to collect sales tax directly from the steel melters and re-rollers after according necessary adjustments in lieu of collection of sales tax at import stage and by issuing an adjustment/ exclusion certificate in this regard.

However, during currency of the above facilitation scheme, the following glaring discrepancies were noticed first by DG External Audit, then by PAC and finally by FTO Secretariat. In this external troika FTOs investigation findings, highlighting misuse of authority in issuance of exclusion certificates were distinctively clearer and conclusive:

i. Issuance of exclusion certificates against cheque/ pay order instead of payment in treasury/ to national exchequer.

ii. Returning of pay orders with illicit motives, to registered persons after issuance of exclusion certificates.

iii. Pay order of one party were used in favour of STRN of another party.

iv. Outright violation of concessionary regime i.e. Issuance of exclusion certificates to unregistered person.

v. Use of pay orders for deposition in treasury for a later period of a registered person.

vi. Inaction in cases of bounced back cheques.

The inspection team constituted by FTO made strenuous efforts and examined voluminous data provided by Corporate Tax Office, Lahore. For cross check the team also retrieved the relevant data from Lahore Electrical Supply Corporation (Lesco).

According to FTO’s findings in the subject inspection, there is a huge gap between number of exclusion certificates issued as per Lesco data and that of CTO, Lahore.

Furthermore, the CTO Lahore did not have information regarding amounts deposited in treasury and corresponding CPR numbers, which are of crucial importance. Also, non-production of record in respect of remaining exclusion certificates clearly depicts that the same fall in extremely grey area where instances of maladministration, misuse of authority, ulterior motives are likely to prevail.

According to FTO findings, based on examination of relevant record an amount of approximately Rs 5.5 billion is suspected to be evaded in such cases at the CTO Lahore.

All Steel Units which availed Exclusion Certificate need to be confronted by the FBR and amounts as per ECs must reconcile with the payment of sales tax at the relevant point of time and where ever there is a difference, it needs to be recovered.

Further in order to ensure fast recovery of this apparent loss of Rs 5.5 billion, the FTO has recommended FBR to re-locate the jurisdiction of steel cases from CTO Lahore to LTO Lahore or RTO Lahore for a more independent and effective recovery proceedings. Similarly, any officers/officials having any link in the past, with the cases of steel melters must not be associated or assigned the fresh jurisdiction of said cases.

The FTO has also recommended FBR to recover the loss incurred on priority basis through its investigation arm: Directorate General I&I-IR. Internal investigation on all Pakistan basis, with special emphasis at Lahore, solely aiming at recovery of loss incurred is required probing all cases of exclusion certificates.

Copyright Business Recorder, 2023