KARACHI: A Karachi-based importer allegedly sold imported mechanical equipment to one of the defense manufacturing facilities at a price over seven times its declared import value.

The case came to light when defense audit authorities questioned the discrepancy between import declarations and the final sale price and sought clarification on the issue from the Federal Board of Revenue (FBR), according to sources familiar with the matter.

The importer had previously claimed exemption from withholding tax under section 153(5)(a) of the Income Tax Ordinance for supplying goods in the same state as imported.

However, the audit officials argued that the massive price difference invalidates this claim, potentially making the supplier liable for withholding tax under section 153.

Sources revealed that the imports occurred during the 2022-23 period. The equipment’s unit price, including all taxes, was approximately Rs. 0.47 million at import. However, the same equipment was then sold to the said defence facility for Rs. 3.4 million, over seven times the import value.

“This is a clear case of under-invoicing,” sources said. “The equipment was likely cleared through customs at a much lower value than its actual worth.”

Meanwhile, sources said that the tax authorities acknowledged the validity of the audit objection but have not issued an official clarification, citing ambiguity in the relevant tax law regarding value changes.

On the other hand, the tax experts are calling for the case to be referred to the customs authorities for potential recovery of evaded duties and punitive action against the importer.

They were of the view that this case has highlighted potential loopholes in the country’s import and tax regulations, possibly necessitating policy reforms to prevent similar occurrences in the future.

Copyright Business Recorder, 2024