Report for audit year 2015-16: Rs 182,491 million irregularities committed by FBR wing detected

The Auditor General of Pakistan (AGP) has detected irregularities of Rs 182,491.20 million committed by Inland Revenue Department of the Federal Board of Revenue (FBR) during 2015-16 including non/short assessment of taxes, grant of incorrect exemptions, wrong adjustment of brought forward losses, non-levy of default surcharge, non-recovery of adjudged revenue, inadmissible input tax adjustments, and incorrect sanction of refunds by IR officials.
According to the AGP report for audit year 2015-16, AGP has recommended that the FBR needs to ensure timely production of auditable data/record and initiate strict and appropriate disciplinary and other action under the law against those causing hindrance in the discharge of constitutional functions of the Auditor General of Pakistan being exercised directly or through sub ordinates. The FBR should invoke provisions of laws holistically for recovery of Duty and Taxes, devise a mechanism to detect and deter tax evasion by enforcing legal provisions against defaulters; strengthen mechanism for adjustment/issuance of refund of Tax; upgrade the existing internal controls to ensure non-recurrence of similar irregularities; improve monitoring of withholding tax which constitutes a major portion of income tax and improve financial management for incurring expenditure according to financial rules.
The report revealed that FBR collected Inland Revenue of Rs 2,257,884 million against revised target of Rs 2,350,000 million for 2014-15 and paid refund of Rs 58,948.12 million. The Directorates General of Audit Inland Revenue conducted audit of receipts (including refunds) of Rs 2,114,595 million. Since the FBR did not provide assessment record of sales tax and Federal Excise Duty, Audit had to rely upon the available soft data pertaining to the returns of Sales Tax and Federal Excise Duty. The FBR incurred expenditure of Rs 13,221 million against final grant of Rs 13,330 million for which audit of Rs 8,461 million was also conducted. The total outlays audited were 67 % of total formations under jurisdiction.
Audit pointed out recovery of Rs 182,491.20 million in this report. The FBR reported recovery of Rs 10,248.51 million on pointation of Audit from January to December 2015 which was verified by Audit. The AGP said that the levy of Tax/duty is prerogative of legislature and cannot be levied through SROs by the department. Audit had time and again pointed out the misuse of SROs/ clarifications issued by the FBR in its Annual Audit Reports. Short levy of tax of Rs 1,136.05 million was pointed out due to unauthorised issuance of SRO No 1003(I)/2011 in the Audit Report 2014-15. The Federal Government through Finance Act, 2015 omitted Clause 79 in Part IV of Second Schedule of the Income Tax Ordinance, 2001.
While conducting compliance with Authority Audit, internal controls of the FBR were found weak and ineffective as various control lapses were identified repeatedly for several years by Audit. These shortcomings included excess reporting of receipts, non/short realisation of Sales Tax, Federal Excise Duty, default surcharge and penalty etc. Moreover, some instances of non recovery of arrears, inadmissible zero rating, irregular claim of exemption, inadmissible/excess payment of refund, non/short realisation of minimum tax, incorrect computation of taxable income, non apportionment of Input Tax and expenses were also pointed out. Audit also observed that there was inadequate monitoring of withholding agents and lack of seriousness on part of tax authorities.
The irregularities showed that internal controls were not functioning effectively. FBR was not taking necessary measures to rectify the lapses to improve the internal controls which resulted in revenue loss of billions of rupees. Had the FBR taken appropriate measures and shown compliance to Audit's observations and the PAC/DAC's directives, the department would never have to revise its targets and would have been able to exceed the revenue targets, AGP raised question.
The AGP required internal audit reports to evaluate performance of Internal Audit of FBR. However, nothing was provided despite repeated written and verbal requests. In the absence of Internal Audit reports, this office was unable to comment on the performance of the FBR. Audit recommends timely completion of internal audit reports by FBR and provision of the same to Audit. Moreover, internal controls may be strengthened by continuous review and recurring lapses be avoided in future.
The key audit findings revealed that the audit observations of Rs 182,491.20 million in respect of compliance with authority audit of receipts and expenditure relating to Inland Revenue for the FY 2013-14 and the FY 2014-15, audited from January to November 2015. The observations include cases of non/short assessment of taxes, grant of incorrect exemptions, wrong adjustment of brought forward losses, non levy of default surcharge, non recovery of adjudged revenue, inadmissible adjustment of Input Tax, incorrect sanction of refunds etc. Systemic deficiencies are also identified with recommendations for preventing recurrence thereof in future.
The key findings were non-production of auditable record/data/documents to Audit, inadmissible adjustment of Input Tax against exempt supplies of Rs 6,175.26 million, non-realisation of Sales Tax on certain goods by illegally treating them as zero rated supplies - Rs 5,273.50 million, non/short-realisation of Sales Tax by giving undue benefit to non-registered persons amounting Rs 4,123.30 million, non-recovery of adjudged dues/arrears of Rs 27,406.98 million, loss due to non-implementation of statutory provisions/SROs resulting in admissible adjustment of input tax of Rs 2,836.21 million, excess sanction of Sales Tax refund through expeditious refund system (ERS) amounting Rs 81.77 million, non-levy of minimum tax on the income of certain persons amounting Rs 2,744.23 million, short-levy of tax due to allowing inadmissible expenses mounting to Rs 1,567.62 million, non-levy of tax on concealment of income or assets amounting to Rs 36,213.33 million, non-deduction/realisation of withholding Sales Tax on purchases from registered/unregistered persons amounting Rs 400.86 million, irregular expenditure due to non observance of PPRA and General Financial Rules amounting Rs 134.15 million and non/short-realisation of Sales Tax from suppliers of FBR amounting to Rs 10.37 million.