Senate Sub-Committee on Ministry of Information Technology (MoIT) here on Wednesday directed Pakistan Telecom Authority (PTA) to bar all the telecommunication companies allegedly involved in tax evasion of Rs 47 billion not to participate in the bidding of 3-G Spectrum licensees.
The committee issued these directions after recording the prima facie confession of the former Director General Large Taxpayer Unit (LTU) Islamabad and existing Member Inland Revenue Service Ijaz Hussain Shah that he was verbally pressurised by the former Chairman Mumtaz Haider Rizvi and Former Member Administration Raza Baqir to agree and sign letter dated June 30, 2012 on alleged deal between former Chairman Mumtaz Haider Rizvi and telecom companies for allowing Rs 47 billion tax exemption on inter-connect charges to telecommunication companies.
Sub-Committee met in the parliament house with Anusha Rehman as chairperson to collect facts about the mega tax evasion scam. Committee heard the viewpoint of the Former Member IR and Member Training FBR Shahid Hussain Asad, Chief Automation Abdul Sattar Aora and Secretary IR Fahad Chaudhry. Former DG LTU Islamabad and present FBR Member IR Ijaz Hussain Shah, Chief Income Tax Muhammad Iqbal and other officials of FBR were also present on the occasion.
Committee while issuing directions to representatives of the telecommunication companies to appear in the next meeting observed that on making hundreds of billions of rupees annually in Pakistan why they are not contributing due tax to the national exchequer and if they are clean than why they are avoiding handing over their record and invoices.
Chairperson sub-committee directed Pakistan Telecommunication Authority (PTA) to ensure availability of required record and invoices of telecommunication companies to know the legality of the tax on inter-connect charges. PTA officials present in the meeting assured the sub-committee that they are legally empowered to obtain the desired records from telecommunication companies and would help FBR to access it.
Member Training FBR Shahid Hussain Asad informed the committee that the statutory regulatory order was drafted but never issued in the official gazette. The telecom companies deposited advance income tax of Rs 6.7 billion in lieu of proposed waiver of FED on interconnection charges. However, the notification was not published in the official gazette. Thus, it was not officially issued.
Two sales tax experts Abdul Sattar Aora and Fahad Chaudhry maintained their legal stance about the interpretation of law on the issuance of clarification based on the viewpoint of Sindh Revenue Board (SRB) regarding waiver of FED on interconnection charges under section 65 of the Sales Tax Act. The law is very clear on the issue and we had issued the clarification after obtaining viewpoint of the SRB and we will not change our legal stance on the issue, Abdul Sattar Aora added.
We daily receive a number of representations and queries and the Board has to give legal viewpoint on all the issues. This a routine work to issue clarifications on issues raised by tax firms on the behalf of the business and trade. The Board has to regularly guide taxpayers on legal matters for accurate payment of taxes. We have rightly interpreted the law and issued the clarification which was later withdrawn by the Board. The FBR has already convened a meeting with the telecom companies in the past on the issue and clarification was issued as per provisions of the section 65 of the Sales Tax Act, Abdul Sattar Aora said.
Former DG LTU Islamabad and existing FBR Member IR Ijaz Hussain Shah informed that when Tribunal gave it''s decision in favour of LTU Islamabad, LTU authorities had written a letter on June 27, 2012 to the then FBR Chairman Mumtaz Haider Rizvi that no exemption from tax on inter connect be allowed to telecommunication companies.
Meanwhile, he informed the committee, former Chairman Mumtaz Haider Rizvi held meeting with legal advisors of the telecommunication companies and agreed with them for payment of Rs 6 billion as advance income tax before June 30, 2012 and FBR would allow them exemption from tax on interconnection charges. After reaching a deal with telecommunication companies former chairman FBR directed the legal advisors of the telecommunication companies to submit their request letter on the subject to LTU Islamabad. Ijaz Hussain Shah informed that he forwarded this letter to the FBR for necessary action. However, he claimed that he was summoned by the then tax authorities and was pressurised on behalf of the former FBR chairman to write his comment in favour of allowing tax exemption to telecommunication companies.
Member IR Ijaz Hussain Shah also informed the committee that despite his strong opposition to proposed exemption, FBR officials did not consul him being DG LTU and reached a deal with telecommunication companies on the legal opinion of Sindh Revenue Board (SRB). All the telecom companies fall within the jurisdiction of the LTU Islamabad and LTU''s viewpoint was not taken in this regard.
He also informed that a leading telecommunication company is earning Rs 80 billion to Rs 85 billion annually and has paid only Rs 2.5 billion tax during last five years. He alleged that telecom companies are involved in massive tax evasion through ''transfer pricing'' by inflating their import of machinery and repatriate huge amounts to off-shore companies in the head of payment of inflated price of their imports and show that they are in loss.
Ijaz Hussain Shah informed that according to available records the conservative estimates evasion on inter-connect charges which are charged from the customers is Rs 26 billion and if default surcharge is included the amount is estimated at Rs 47 billion and if the complete tax record is made available to FBR this evasion might go to over Rs 100 billion.
Abdul Sattar Aora confirmed the committee that copy of the draft notification which was prepared for allowing tax exemption to telecommunication companies was handed over to legal advisors of the telecom companies by former Chairman FBR Mumtaz Haider Rizvi. Later, the signed notification was withdrawn by the FBR.
Chairperson and members of the committee were shocked to hear the information and were of the view that this is the main reason that governments are forced to carry begging bowl to IFIs to get money. They also observed that these confessions clearly indicate that tax policy is weak and flawed as big guns are not paying due taxes and only salaried class is being victimised.
Committee members also questioned Ijaz Shah that why he was under pressure on verbal orders of member administration and former Chairman FBR and why he did not recorded his reservations in writing on the request from the telecom companies. In case, the former chairman FBR denied such kind of allegations, than former DG LTU (Ijaz Hussain Shah) could be in trouble.