ISLAMABAD: The acquirers or possessors (traders) of smuggled/ domestic goods, on which sales tax has not been paid, will be deemed to be involved in tax fraud under the proposed sales tax law.

Former chairman Federal Board of Revenue (FBR) Shabbar Zaidi explained that the FBR has proposed to change the definition of “tax fraud” under Sales Tax Act, 1990. The new definition is better than earlier text. The most important change, in fact, relates to smuggled goods or goods on which sales tax has not been paid.

On the practical side, Pakistani markets are full of imported goods and domestic goods on which due sales tax and duties have not been paid.

Sales tax audit procedure redefined

Zaidi stated that the acquirer or possessor of such goods, who are usually the traders, will be deemed to be involved in tax fraud for which there are severe consequences in the law.

The leading chartered accountant informed that the amendment is correct; however, its implementation appears to be difficult in the present circumstances where there is large availability of non-duty and sales tax paid goods in the country.

If this amendment is to be implemented, then an exercise has to be initiated for that purpose.

This exercise is to curb large scale smuggling and abuse of Afghan transit trade. If this amendment is introduced in the present circumstances then that may lead to harassment and resultant corruption, Zaidi added.

The FBR through C No 1(12) TR/IR-Ops (IR-Code)/2021-114506-R dated July 1, 2023 has issued a draft of proposed amendment to be made in the fiscal statutes by the Finance Bill, 2024. The statutes are Income Tax Ordinance, 2001; Sales Tax Act, 1990; Federal Excise Act, 2005, and Islamabad Capital Territory (Tax on Services) Ordinance, 2001.

The feedback may be provided by December 31, 2023 at the email address: secy.itb@fbr.gov.pk. This is a step in the right direction that amendments proposed in the Finance Bill are made available for public comments well in time. One major proposed change is in the definition of “tax fraud” under Sales Tax Act, 1990, they added.

Present definition is as under: (37) tax fraud means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused) –

(i) Doing of any act or causing to do any act; or (ii) omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act; (iii)] falsifying or causing falsification the sales tax invoices, in contravention of duties or obligations imposed under this Act or rules or instructions issued there-under with the intention of understating the tax liability or underpaying the tax liability for two consecutive tax periods] or overstating the entitlement to tax credit or tax refund to cause loss of tax.

The proposed definition: (37) “tax fraud” means intentional evasion of legally due tax or obtaining of undue refund by submission of false return, statements or false documents or withholding of correct information or documents and includes-

(a) suppression of sales or receipts that are chargeable to tax or duty under this act; (b) false claim of deductions or expenses; (c) making taxable supplies of goods or services without issuing any invoice, in violation of the provisions of this Act or the rules made there-under; (d) issuance of any invoice or bill without supply of goods or services leading to wrongful availing or utilisation of input tax credit, deduction or refund of tax; (e) availing of input tax credit or deduction using an invoice or bill referred to in clause (d); (f) evasion of tax by availing undue input tax credit, deduction or obtaining undue refund by any means or method other than that covered under clauses (a) to (e); (g) collection of any amount as tax but failing to deposit the same in the prescribed manner beyond a period of three months from the date on which such payment becomes due; (h) falsification or substitution of financial records or production of fake accounts or documents or furnishing of any false information through human, mechanical or electronic means with an intention to evade tax due under this Act; (h) tampering with or destroying of any material evidence or documents required to be maintained under this Act or the rules made there-under through human or digital means; or (i) acquisition, possession, transportation, disposal or in any way removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner dealing with, any goods in respect of which there is reasons to believe that these are liable to confiscation under this Act or the rules made there-under.

Explanation: Any act or omission mentioned in this clause shall be treated as intentional unless the person accused of tax fraud proves that he had no intention, motive, knowledge, or reason to believe that he was committing a tax fraud.

Copyright Business Recorder, 2023