The Federal Board of Revenue (FBR) is planning to set up an 'Anti-Evasion Cell' in the Sales Tax Wing to unearth evasion of sales tax and federal excise duty (FED) and organised tax frauds being committed by high-risk sectors, showing abnormal tax profiles.
Sources told Business Recorder on Sunday that the FBR's 'Anti-Evasion Cell' would perform several important functions to detect fiscal frauds within the value-added tax (VAT) regime and federal excise duty area. The proposed 'Cell' would have the mandate to keep a close eye on the high-risk sectors. Secondly, it would also help the FBR to improve indirect taxes collection through detection of big evasion cases.
Thirdly, it would constantly monitor the data of registered units having abnormal tax profiles. Fourthly, it would collect information about the sectors earning huge profits but paying nothing in the form of duties and taxes. Fifthly, it would thoroughly use analysis being compiled through fiscal research and statistics available with the FBR.
As there is more activity on the sales tax side on monthly basis, there is a constant need to regularly monitor the high-risk sectors, sources stated.
Sources said that the concept of 'Anti-Evasion Cell' is not new in the tax structure of the FBR. Under previous organisational structure, 'Anti-Evasion Cells' were established in each Collectorate of Sales Tax. Similar kinds of departments are presently working in the customs department. For example, anti-smuggling department, appraisement intelligence branch etc. The concept of 'Anti-Evasion Cell' would be restored to ensure detection of mega tax fraud cases through team of expert officials. There are legal issues involved in such cases, which would be thoroughly securitised before framing any case, or making recommendations against high-risk sectors.
When contacted, a tax expert said that the proposed powers and jurisdiction of the 'Anti-Evasion Cell' would clarify its role in analysing data of sectors, showing abnormal trends in payment of taxes. However, a question arises whether the said 'cell' would also determine the role of tax officials allegedly assisting unscrupulous elements in payment of inadmissible refunds, or under-reporting of sales tax and federal excise. In most of the tax fraud cases, the system of "STARR" was bypassed by the concerned officers involved in such kinds of scams. On the other hand, data tampering is not possible without the involvement of sales tax staff. In most of the tax fraud cases, STARR system was grossly misused to facilitate the organised gangs, etc.
Similar cases were also detected in the past where refunds were claimed on 'paper shipment', or invoices of blacklisted units were used to commit tax frauds.
Sources said that currently the Directorate-General of Intelligence and Investigation is legally empowered to detect sales tax evasion cases. The Directorate of Inspection and Internal Audit is also empowered to unearth sales tax evasion cases based on information available with the department. Directorate of Revenue Receipt Audit of the Auditor General Office also conduct external audit of the units registered with the sales tax department. The system of routine, investigative and post-refund audit is availed to check inadmissible refunds. Collectorates had conducted 'chain audits' within the supply chain to unearth tax frauds. The reward rules also facilitate informers and tax officials to detect evasion of sales tax.
Tax officials are getting rewards on detection of evasion cases. The state of the art systems like "CREST" could effectively check abnormal trends in suspected sectors and cross matching of data. Electronic filing of sales tax returns has successfully enabled the department to verify sales tax invoices and invoice summaries, etc. E-filing can check discrepancies in sales and purchase data. Besides refund verifications, the input tax credit and other claims could now be verified due to e-filing system. The "NEXUS" system is collecting third-party information about registered units from external sources. Therefore, a number of tax departments are already operating to check evasion of sales tax. The adjudication department fulfils the legal requirements to deal with the tax evasion cases.
If the proposed 'Anti-Evasion Cell' is to provide ample data against the suspected high-risk units, it would be helpful in improving revenue collection. In case the functioning of the department remained within the ambit of analysis and research, it would not create any problem for the taxpayers. If the 'cell' works on scientific basis, it would be a help for the department. The discretionary powers of sales tax officials of the proposed 'cell' should not be enhanced to avoid harassment to the taxpayers.
However, if the FBR provides legal powers to the 'Anti-Evasion Cell' to frame contravention cases and prosecute the registered taxpayers, it might create harassment to the taxpayers. Any power to conduct raids or inspection of the registered units would create problems for the business community.
The terms of reference of the 'Anti-Evasion Cell' would clearly define role and responsibilities of this new department. The FBR should take the business community into confidence before creating departments like 'Anti-Evasion Cell'. The Tax Administration Reform Project (TARP) is mainly focused on electronic exchange of data and automation to improve compliance level. The proposed 'Anti-Evasion Cell' should not be empowered to physically interact with the registered units. This might result in restoration of manual or supervised systems of the old sales tax laws, sources added.