ISLAMABAD: The taxpayers are accused of taking maximum advantage of the defective IT system of the Pakistan Revenue Automation Limited (PRAL), which has caused a revenue loss of over Rs1,000 billion due to the failure of the PRAL to implement basic cross-checks in the income tax return and wealth statement forms.

This has been claimed in a report of Directorate General Internal Audit (Inland Revenue) received by the FBR Member IT Tuesday on the non-cross matching of wealth statements, enabling taxpayers to add huge assets without tax payment.

The Directorate General Internal Audit (Inland Revenue) has asked the FBR to take immediate action against the PRAL software developers, who prepared such defective income tax return and wealth statement forms without proper checks, resulting in huge revenue to the FBR.

According to the report of the DG Internal Audit (IR), the directorate has been pointing out numerous defects in the software systems prepared by the PRAL, which are leading to tremendous revenue leakages by enabling taxpayers to misdeclare their tax liabilities and easily evade tax payments.

The report stated that at times, it appears as though these systems have been developed by amateur software developers, who have not even bothered to implement the basic cross-checks for data validation.

Thus, despite the huge expenditure incurred on the PRAL every year (audit of which is being avoided by the PRAL), the defective software systems prepared by it have enabled unscrupulous persons to exploit the lacunae and evade many billions of rupees of sales and income tax.

During scrutiny of wealth statements filed by taxpayers, it was found that the PRAL has failed to implement basic cross-checks in the income tax return and wealth statement forms, thus, enabling taxpayers to enter data as they please. Many taxpayers have taken advantage of these defective forms and easily made huge enhancements in their wealth/assets, without disclosing their source or paying any tax thereon, the report said.

The modus operandi is as follows: suppose a taxpayer declares “Net Assets Current Year” in Tax Year 2015 as Rs10 million, but in Tax Year 2016 his wealth increased to Rs30 million.

He wants to declare the additional assets without fully paying tax.

To do so, he simply shows “Net Assets Previous Year” as (say) Rs25 million, instead of the actual Rs10 million. Thus, he shows accretion of only Rs5 million, on which tax is paid, instead of on Rs20 million.

The defect in the system is that it does not cross check the figure entered in “Net Assets Previous Year” with the “Net Assets Current Year” declared in the wealth statement of the previous year. A comparison was made of “Net Assets Previous Year” declared by taxpayers in their wealth statements for Tax Years 2015 to 2020 with the “Net Assets Current Year” declared by them in the preceding tax year.

The data revealed that nearly 500,000 taxpayers unlawfully enhanced their wealth in this manner.

The original data showed enhancement of Rs5,705.798 billion, but closer examination revealed some obviously defective data.

Thus, the taxpayers have unlawfully enhanced assets by Rs1,202 billion without payment of any tax.

Taking the rate of 30 percent, the tax evaded comes to Rs360 billion apart from default surcharge and penalty.

If penalty @ 100 percent is imposed u/s 182 and default surcharge is charged u/s 205 of the Income Tax Ordinance, the total recoverable amount would exceed Rs1,000 billion, the report said.

The directorate has proposed to the FBR that the data be circulated to the field formations, and they be directed to urgently take up these cases for assessment under section 111 of the Income Tax Ordinance 2001 along with charging/imposition default surcharge and penalty under section 205 and 182 thereof.

Second, action be taken against the PRAL software developers who prepared such defective income tax return and wealth statement forms without proper checks, which enabled such a huge loss of revenue, the FBR strongly proposed.

Third, the FBR should direct the PRAL to implement all the necessary data verification checks without further delay.

The directorate has emphasised that the limitation period for assessment of Tax Year 2015 expires on June 30, 2021, the report added.

Copyright Business Recorder, 2021