The Federal Board of Revenue's (FBR) Directorate-General of Intelligence and Investigation Inland Revenue (IR) on Saturday moved to arrest and prosecute owners and directors of textile units involved in misuse of zero-rating regime, fake invoices and claim bogus sales tax refunds on fake exports.
Sources told Business Recorder that special teams of the DG I&I IR has started conducting raids in Karachi, Faisalabad, Lahore and KP to arrest and prosecute directors of textile units who have misused zero-rating regime or normal sales tax laws. Other categories of units included those involved in business of fake/flying invoices, claimed bogus sales tax refunds on fake exports.
In view of serious complaints of fraudulent activities in textile sector, DG Intelligence and Investigation IR has taken extreme action of registering FIRs, arrest and prosecution of owners of these units involved in tax frauds. These textile units have caused huge loss to the national exchequer and now the raiding parties of the agency would trace and arrest all those involved in fraudulent activities with the help of database as well as Computerised Risk-Based Evaluation of Sales Tax (Crest) system. The agency has already done its homework on textiles sector with ample, evidence of bogus refunds etc using preventive mechanism of "Red Alerts".
Political victimisation should not be made an excuse, the campaign will be fully transparent and strict action will be taken against the biggest tax evading units. No units resorting to the above mentioned tax evasion tactics will be spared irrespective of any political affiliations. In a past meeting at the FBR House, Chairman FBR had informed All Pakistan Textile Mills Association (APTMA) authorities before hand about the misuse of different facilities by the sector. It is astonishing to note that refund is much more than the tax paid by the zero-rated sector, official added.
Initially, the agency has picked 30 fraudulent units across the country. The scope of the exercise would be considerably expanded to other units at the later stage. Honest textile units would be provided a level playing field but criminal action has been initiated against the fraudulent units.
As a result of the exercise, the agency would register FIR, seal the manufacturing/business premises of fraudulent units, conduct raids and arrest directors of such units. The exercise has been conducted in such a manner that the units involved in frauds would be taken to task and honest players would be provided level playing field.
According to sources, the DG I&I IR has lodged FIR against 8-10 textile units in Faisalabad and raids are being conducted to arrest the directors of the units. Some directors of the fraudulent units have escaped and gone underground to evade the authorities. The agency is actively engaged in tracing the directors of fraudulent units and constituted special teams in this regard.
The DG I&I IR constituted two raiding parties in Faisalabad under the supervision of Director I&I IR Abdur Razaq. Director Faisalabad, having vast experience of enforcement, who is personally monitoring the whole exercise. One team of Abdur Razaq is conducting raids in Multan and the other in Faisalabad. Asif Rafiq Deputy Director I&I IR Faisalabad is assisting the agency to trace and arrest fraudsters in textile sector.
Similar kind of action has been taken in Karachi by Director I&I IR Karachi Syed Ayaz Mahmood. In Karachi, agency is focusing on the units where "Red Alerts" have been issued by the department on the basis of solid evidence. The agency would initiate criminal proceedings against units in Karachi taking into account "Red Alerts". FBR Chairman has explicitly directed the DG I&I IR that issuance of "Red Alerts" is not enough in such cases of bogus sales tax refunds. The agency should initiate criminal proceedings against the units involved in obtaining bogus sales tax refunds.
The whole exercise in Karachi has been mainly monitored and supervised by Director I&I IR Karachi Syed Ayaz Mahmood and Additional Director I&I IR Aqeel Ahmed Siddiqui. In Faisalabad and Lahore, the special teams of the agency have finalised cases involving misuse of sales tax zero-rating regime and SRO.283. Similar crackdown has been launched in KPK under the supervision of Additional Director I&I IR Mir Badshah Khan Wazir. The directorate of intelligence IR is extensively using the return processing data available with the CREST during the whole process. On the FBR Chairman specific instructions, the access of the CREST has been given to the DG I&I IR. With the help of this software, sold evidence is available with the agency for taking action against fraudulent textile units.
In Lahore Director I&I IR Zahid Khokhar and Deputy Director I&I IR Amir Abbas Khan have been actively engaged in tracing directors of fraudulent units. These expert officials are making it impossible for evaders to escape.
Sources said that the Director I&I IR Headquarters Islamabad is co-ordinating the whole exercise on national level to ensure that cases are initiated on solid basis and transparency be ensured. The central monitoring at Islamabad would also ensure that nobody should be victimised and uniform action be taken under the operational strategy across the country.
Sources added that the ongoing crackdown has also been initiated against top textile tax evaders, who are involved in issuance of flying invoices to avoid 5 percent reduced amount of sales tax under SRO.1125(I)/2011. The agency has also taken action against evaders of zero-rating regime under SRO.1125(I)/2011.
The FBR has revised zero-rating regime of the five export oriented sectors in March-2011 to charge sales tax at the reduced rates of 4% and 6% on supplies of these sectors to un-registered persons. These rates were substituted with a uniform rate of 5% vide SRO.1125(I)/2011 dated 31.12.2011. The FBR's data for the past 12 months revealed that a negligible amount of tax has been collected on local supplies of five zero-rated sectors under SRO.1125(I)/2011. Intelligence reports indicate that five sectors have created fake companies and have indulged in other malpractices to avoid payment of sales tax at the rate of 5%. In certain cases, the modus operandi used by such evaders is that they sold their goods to un-registered segments of the textile supply chain which attracts 5 percent payment of sales tax, but to defraud government exchequer they use particulars of bogus registered persons which usually discontinue their business in a very short span of time. The government has already introduced a reduced rate regime for five export oriented sectors with objective to promote industrial activity. However, some unscrupulous elements are even not ready to pay reduced rate by using different tactics.