The Federal Board of Revenue (FBR) is expected to launch a country-wide verification drive to check whether manufacturing units with sales tax registration numbers (STRNs) physically exist on their declared business addresses, curbing the incidence of tax fraud.
Experts told Business Recorder on Tuesday that the sales tax registration is the first stage of any fiscal fraud/tax scam. Elements involved in tax evasion obtain STRNs which forms basis for committing tax frauds. In all cases of bogus refunds, there are registered units whose physical verification has been deliberately done to give STRNs. On the basis of STRNs, all fraudulent units have obtained bogus sales tax refunds and input tax adjustments, causing huge loss to the national exchequer. Without STRNs, fraudulent units cannot enter into the supply chain of the FBR to obtain bogus refunds or adjustments.
Under the law, physical verification of manufactures is mandatory for obtaining STRNs. Officers of Inland Revenue a critical role in physical verification of declared premises of manufacturing units. STRNs were issued to manufactures on the basis of physical verification report of auditors. In most of tax fraud cases, these units are not available on declared business addresses or untraceable or even non-existent. This clearly reflects that tax officers 'confirmed' the existence of certain manufactures who were practically not engaged in manufacturing process. So far, the FBR has taken no action against any Inland Revenue officer, who verified the premises of fake manufacturers, helping them obtain STRNs.
Directorate-General of Intelligence and Investigation Inland Revenue also concluded that the registration of fake units was one of the main reasons behind tax scams. According to sources, the only way to check sales tax frauds is to re-check the current status of manufacturing units. The FBR has the option to conduct physical or electronic verification.
Sources said that the FBR has time and again unearthed tax scams. However, the question arises whether FBR took any disciplinary action against officers involved in the physical verification of non-existent units to grant STRNs. If a fake unit has been able to obtain the STRN successfully, why has the Board not taken any action against such officers, who submitted physical verification report to the concerned Regional Tax Office (RTO)? There is no legal bar on the FBR to re-check the existence of the registered manufactures. The FBR is making hue and cry on the fake input tax adjustments and proposed action against units involved in such activities. However, the Board has never talked about re-verification of registered manufactures. Similarly, the Board is yet to launch re-verification exercise of the manufacturers to distinguish between genuine and fake units.
Sources said that the FBR should start the physical verification exercise by focusing on the category of 'manufactures' and exclude all public listed companies. The verification or re-checking exercise should focus on three main areas ie two physical checks and one system check. The physical checks should include that whether the unit is available on the declared business addresses. The second check is to verify the utility bills like electricity and natural gas consumption. The bills verify the consumption of electricity etc in the declared premises of the manufacturing unit.
Another option is to electronically check the status of manufacturers by sending e-intimations. The FBR can direct the manufactures to submit the scanned copy of their business premises, copies of utility bills of past months and statements of their buyers and sellers. As a result, the FBR can identify the genuine units, suspicious units and fake units. Fake units could be blacklisted or suspended for further scrutiny, sources said.