ISLAMABAD: Around 30 percent of the total sales tax registered persons (397,000) have obtained sales tax registration to obtain fraudulent sales tax refunds and conduct the business of fake and flying invoices in Pakistan.

A source on strict condition of anonymity told Business Recorder that the total number of sales tax registered persons now stood at 397,000, according to the data of the Federal Board of Revenue (FBR). The data of 397,000 sales taxpayers included dormant taxpayers, active, as well as, inactive taxpayers, but still registered with the sales tax department.

Out of the total sales tax registered persons, nearly 25-30 per cent has obtained sales tax registration to carry out fraudulent sales tax activities.

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The percentage would be on the higher side, but I have given you a conservative figure on the lower side. In the name of facilitation and ease of doing business, the sales tax registrations were liberally issued resulting in fraud of billions, the source added.

A leading sales tax expert strongly rejected the said percentage of 30 percent of fraudulent taxpayers. These are mostly dormant taxpayers. If 30 percent of sales taxpayers are registered for fraudulent activities, this means that 97,000 registered sales taxpayers are bogus and fraud which is not possible. This also means that every third or fourth registered person is fraud, which is also not possible, the sales tax expert added.

According to sources, the estimated sales tax amount evaded through the fraudulent use of flying invoices (irrelevant invoices) would be approximately Rs5-6 trillion. The use of fake/flying invoices to commit sales tax fraud has increased after facilitation, automation and easy ways to get sales tax registrations.

The quantum of sales tax fraud through the “flying invoices” has not decreased after automation. In the name of facilitation, now it is easy to get sales tax registration.

The use of fake invoices has been reduced due to system checks, but the phenomenon of flying invoices has been increased. The estimated amount of sales tax evaded with the help of flying invoices comes to the tune of Rs5-6 trillion, the sources said.

Flying invoices have been used in different cases. There are cases where the input is completely registered but the output is un-registered within the supply chain. On the other hand, there are cases where the output is registered but the input is not registered.

Fake units are registered with the FBR to carryout paper transactions. The fraudsters file fake sales tax returns of dummy firms and claims illegal input tax against bogus invoices. The fake/flying invoices have been used to claim inadmissible refunds/ input tax adjustments, causing massive revenue loss to the national exchequer.

Copyright Business Recorder, 2024