The Public Accounts Committee (PAC) expressed serious concern over the poor performance of the Federal Board of Revenue (FBR) while responding to the queries on the audit observations for 2008-2009. During committee proceedings on Wednesday, the Acting Chairman of the PAC Zahid Hamid stated that the performance of the FBR is pathetic.
It is astonishing to note that how a department like FBR can come to the committee without preparations. The issue came to the light when the FBR officials were unable to give satisfactory response to different audit objections raised by the committee. Due to lack of co-ordination among the FBR members, an embarrassing situation was created when the FBR remained unable to respond to different audit objections of the committee. Even the tax officials were unaware whether the compliance reports have been submitted to the committee or not. At one stage, a senior FBR Member apologised to the committee with the commitment to remain careful in future.
The committee warned the FBR officials to show seriousness in their attitude or outsource the whole tax department to external companies for recovery of taxes. Meanwhile, FBR Member Strategic Planning and Statistics Abrar Ahmed Khan informed the Public Accountants Committee on Wednesday that the Federal Board of Revenue (FBR) is analysing declarations of the income tax returns with the monthly sales tax returns to verify data particularly supplies for determining their actual tax liability. The person liable to file monthly sales tax return is also required to file his annual income tax returns. The cross matching of data can identify the actual purchases and sales.
The officials of the Auditor General of Pakistan informed the committee that FBR must address systemic issues for cross verification of income tax returns and with the monthly sales tax returns. The AG office informed the committee that under section 3 (1) read with sub-section 46 (a) of section 2 of the Sales Tax Act, 1990, there shall be charged, levied and paid a tax known as sales tax at the rate of 15% of the value of taxable supplies, and value of supply means the consideration in money including all Federal and Provincial duties, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax.
M/s OGDCL of LTU, Islamabad had been paying sales tax on supply of gas made to M/s Uch Power Plant but did not include the following components while computing the sales tax: Monthly Demand Charges; Monthly Transportation Charges; Monthly Transportation Commodity Charges.
The company was paying royalty on monthly commodity charges only, on the gas supply which was objected by the government of Balochistan and the matter was finally decided in a higher level meeting, held on 8th June, 2008, chaired by Minister of Law and Justice. According to the decision M/s OGDCL paid differential amount of royalty amounting to Rs 3 billion on 9th July, 2008. The payment of royalty on all the four components substantiates Audit's view point that sales tax should also be computed on the mode of computation of royalty. This resulted in short-payment of sales tax amounting to Rs 3, 031.399 million which also attracts levy of penalty and default surcharge under the Sales Tax Act, 1990. The lapse was pointed out to the LTU, Islamabad in January, 2009 and the FBR in May, 2009.
The department stated that an amount of Rs 2, 285.647 million has been adjudged vide Order-in-Original No 14/2010 dated 29.09.2010 for recovery while an amount of Rs 1, 261.660 million was vacated being barred by time limitation. The department added that the recovery would be affected except the amount which was barred by time. The PAC directed the PAO "to expedite recovery and examine reasons for the case becoming time barred. Report on next rota day."
The Chairman FBR was directed to get clarification from Audit whether the case was time barred when pointed out by them. It was directed that responsibility may be fixed that why the case was allowed to become time barred. A report is to be submitted in three days.
The LTU contended that audit observation was received in RTO, Islamabad in January 2009. However, due to change in jurisdiction the case was transferred to LTU, Islamabad in May 2009 and show cause notice was issued on 29.06.2009. The amount involved for the period 1999 to 2004 ie Rs 1262 million was already time barred under the Sale Tax Law as such. The adjudicating authority lawfully vacated the said amount and issue of fixing responsibility does not arise. Amount of Rs 1769.679 million was adjudged besides penalty of Rs 88.484 million and default surcharge Rs 427.483 million. However, matter is in appeal.
Audit contended that the department should have calculated the amount of sales tax on the value of supplies by including all the four components, which M/s OGDCL was receiving from M/s Uch Power Plant. The responsibility needs to be fixed in view of the loss which has occurred on account of becoming time barred. The DAC observed that matter may be placed before PAC for decision/guidance.
The departmental stance that the case was time barred from July, 1999 up to January, 2004 when pointed out by audit in January, 2009 is correct as per law. However, Audit still holds that it was responsibility of the department to ensure that sales tax assessment declared by the tax payers was correct and according to the section 2(46) of Sales Tax Act, 1990. The Sales Tax Act, 1990 empowers the department to conduct audit of assessments once in a year. The department however, failed to ensure/implement this important aspect of the law which resulted in short assessment and loss of revenue Rs 1261.659 million.
Further, it is pertinent to mention here that if the Department of Auditor General of Pakistan had not pointed out this short assessment, in view of prevalent system of internal controls in FBR, this lapse would have continued further aggregating the loss of revenue to the National Exchequer. The Department needs to review its system critically. Furthermore, it is also important to highlight that M/s OGDCL makes supplies to a number of other agencies. The department needs to ensure that sales tax assessed and declared in such other cases is correct as per law, AG office added.