FY11 tax collection: FTO takes suo motu notice of fudging of figures

SOHAIL SARFRAZ

ISLAMABAD: Federal Tax Ombudsman Dr Muhammad Shoaib Suddle has taken suo motu notice of 2010-11 revenue collection fudging of figures by Federal Board of Revenue, during the tenure of former Chairman Salman Siddiq, creating embarrassment for Pakistan at international donor circles as well as general public.

Sources told Business Recorder here on Wednesday that the figure fudging by the FBR during 2010-11 was a source of concern for the FBR and former FBR chairman had offered resignation taking full responsibility of gross misreporting of sales tax figures for 2010-11. Last year, former FBR chairman had reportedly informed the National Assembly Standing Committee on Finance that chief commissioners of certain Regional Tax Offices (RTOs) were removed from their lucrative positions as a result of investigation against senior tax officials involved in wrong reporting of tax figures for fiscal year 2010-11. However, these corrective measures failed to improve the image of the FBR, as sales tax figures were deliberately fudged in fiscal year 2010-11.

The FTO has taken serious notice of the wrongdoing as FBR used its position and unlawfully borrowed from Large Taxpayer Units (LTUs) to show higher than real collection - complaint number 982/2011. The FTO office has raised certain valid questions about the technique used by the FBR for showing higher than actual revenue collection during 2010-11.

FTO office has categorically conveyed to the FBR that the net recovery collection for 2010-2011 was jacked up by withholding refunds/ drawbacks and attempt was also made to show higher than real/ actual net collection of revenue by borrowing huge amounts of money from large taxpayers, but the move did not work as State Bank of Pakistan refused to reflect the borrowed amount of money deposited in July as collection of revenue in Financial Year 2010-11.

In a directive to the Secretary Revenue Division, the FTO Office said that whereas, suo motu notice was taken under Section 9(1) of the FTO Ordinance, 2000 on a media report that Revenue Division/FBR had attempted to show higher than actual/real collection of revenue during financial year 2010-11 through unlawful measures:

(i) Withholding of huge amount of taxpayers refund; and (ii) borrowing Rs.43.51 billion from large taxpayers’ during June, 2011, on the promise of returning the amount after few days.

And whereas, the allegations were referred for reply to the Secretary of the Revenue Division, vide FTO Secretariat notice of even number dated August 17, 2011. The Revenue Division/FBR replied vide letters No.1(962)TO-11/2011 dated October 10, No.5(33)/R-Jud/2011 dated February 16, 2012 the FBR neither issued any instructions for withholding of refunds nor for money lending by large taxpayers to show higher than real collection of revenue. The departmental representative also vehemently refuted allegation of money lending by the large taxpayers as reported by the press.

The FTO Office said further investigation has revealed that an amount of Rs.143,875.88 million of taxpayers refund/ drawbacks was held up on June 30, 2011 as against Rs.79,248.90 million on June 30, 2010 and Rs.53,252.35 million on June 30, 2009.

The FTO Office stated said that further investigation also revealed that an amount of Rs.25 billion lent by the following taxpayers of LTU Karachi were got deposited in Tando Allah Yar Branch of NBP: National Bank of Pakistan (NBP), Habib Bank Ltd (HBL), United Bank Ltd (UBL), Pakistan State Oil (PSO) and Pakistan Petroleum Ltd (PPL).

And whereas, the amount was shown as collected out of current demand by LTU Karachi in the monthly performance report for July, 2011, which is evident from the letter No.Jud-4(1-8)/11-12/286/1994 dated October 7, 2011 issued by Chief Commissioner, LTU, Karachi, addressed to the Chief Coordinator, Computer Wing (Direct Taxes), Islamabad, and another letter dated August 29, 2011 issued by Secretary Inland Revenue (Revenue Budget), FBR, addressed to the Chief Commissioner, LTU, Karachi, it said.

The FTO Office further said that an amount of Rs.18,811,590,000/- was likewise, got deposited on July 6, 2011 in Fateh Jang Branch of NBP pertaining to the large taxpayers including the following: Government Holdings (Pvt) Ltd; Muslim Commercial Bank (MCB); Oil and Gas Development Corporation (OGDC) and Pakistan Telecommunication (PTC). This is evident from letter No.Rev.Bug/2011-12/692 dated August 18, 2011 issued by Chief Commissioner, RTO, Rawalpindi addressed to Chief Commissioner, LTU, Islamabad land letter No.F-AC(HQ)/LTU/2011/283 dated 7.10.2011 issued by Chief Commissioner, LTU, addressed to the Chief Coordinator, DPC, FBR, Islamabad.

The Monthly Performance Report of LTU, Islamabad for July 2011, shows cash collection of an amount of Rs.18.81 billion out of current demand and cash refund of an equal amount during the same month, which lends credence to the media report that huge amounts of money, unlawfully borrowed from nine large taxpayers, was got deposited in far flung area bank branches of NBP in order to show collections exceeding the targets without any lawful tax liability of the large taxpayers under reference. This temporarily borrowed money was thus refunded to the lending taxpayers within a few days. It is also understood that the amounts shown as refunded during the month of July, 2011 by LTU, Islamabad and LTU Karachi could not be refunded without returns of Income for tax year 2011, without establishing the excess payment of tax in these cases, and without adopting proper procedure including filling of refund applications and without passing proper orders of refund as prescribed in Section 170 of the Income Tax Ordinance, 2001, FTO office maintained.

The foregoing facts indicated that the net recovery collection was jacked up by withholding refunds/ drawbacks and attempt was also made by the Revenue Division/ FBR to show higher than real/actual net collection of revenue by borrowing huge amounts of money from large taxpayers which failed due to refusal of State Bank of Pakistan to reflect the borrowed amount of money deposited in July as collection of revenue in Financial Year 2010-11.

Now therefore, Secretary Revenue Division has been called upon to supply the following questions:

Firstly, If the FBR policy is to maximize revenue collection without compromising payment of refunds, as contended vide para (v) of FBR letter C.No.1(962)TO-II/2011 dated October 10, 2010 then how has the amount of refund claims unusually and exponentially increased from around Rs.53 billion as on June 30, 2009 and Rs.79 billion as on June 30, 2010 to Rs.143.675 billion as on June 30, 2011?

Secondly, how is it that, without the request of Revenue Division/ FBR, an amount of Rs.43.51 billion was deposited by large taxpayers in the first week of July, 2011, which was refunded in the second week of July, 2011?

Thirdly, was any tax then due from the companies and were any tax returns filed by these companies in pursuance of which they had to deposit these amounts?

Fourthly, were any refund applications filed by these companies in response to which refunds were granted? If so, what were the grounds for claiming these refunds?

Fifthly, why the amounts were deposited in the far flung area branches; and why companies enrolled/ registered with LTU Karachi Revenue deposited the amount in Tando Allah Yar Branch of NBP; and companies enrolled in LTU, Islamabad, deposited huge sums in Fateh Jang branch of NBP, falling in the jurisdiction of RTO, Attock?

Now therefore, Secretary Revenue Division has been called upon to submit replies to the above mentioned questions duly supported by copies of the cheques and all internal correspondence and statements on the subject, the FTO office added.