Directorate of Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue (FBR) has unearthed a high net worth case of a well-known fashion designer of Pakistan, involved in tax evasion by maintaining five undeclared Benami bank accounts.
Sources told Business Recorder on Thursday that the intelligence arm of the FBR has detected a unique case of the Rawalpindi-based fashion designer, who was liable to be registered with the sales tax department but deliberately involved in under-declaration and suppression of sales to avoid payment of sales tax. The fashion designer has also established a new office in USA but declared her annual turnover below the sales tax registration threshold of Rs 5 million. The agency's expert team thoroughly analysed the banking transactions and record to investigate the matter and found glaring misstatements and under-declarations to avoid payment of taxes. The trail of banking transactions from one Benami bank account to another has been detected and linkage has been established between different Benami bank accounts used to evade the authorities. The Benami bank accounts were used by the fashion designer to conceal actual banking transactions for evasion of sales tax.
The agency was surprised that how such a renowned fashion designer having a branch in USA is not ready to obtain sales tax registration with the tax department.
Details of the case revealed that the directorate I&I-IR Islamabad unearthed tax evasion/fraud to the tune of millions committed by a well-known fashion designer of Pakistan. On the basis of credible information, it was unearthed that the said manufacturer cum retailer of women's designer dresses, was "liable to be registered" in Sales Tax under section 2(25) of the Sales Tax Act 1990, read with Rule 4 (a) of The Sales Tax Rules 2006, and SRO 1125(1)/2011. However, the unit failed to get registered in Sales Tax and instead concealed its true sales from the department to evade taxes; and parked its sale proceeds in various concealed and undeclared Benami accounts.
The taxpayer manufactures costly bridal dresses and has two other outlets in Islamabad and Lahore. She regularly participates in fashion shows in Pakistan and around the world and has a branch office in US. Foreign travelling data of taxpayer obtained from FIA also confirmed her frequent foreign travelling. Correlating this with the fact that the taxpayer has declared her turnover just below the Sales Tax registration threshold of Rs 5 million during the last two years presented a glaring instance of under-declaration and suppression of sales.
During the scrutiny of the record, various concealed bank accounts have been detected where the sale proceeds of fashion designer are being parked. The proprietor declared only two bank accounts in the income tax return. Between TY 2012-14, an amount of Rs 92.6 million has been credited only in one account, which is not declared by her. Five concealed bank accounts of fashion designer are found so far. When bank statements of different bank accounts in the use of fashion designer were collected, the credit entries found were extraordinary.
Sources said that search of premises of the head office located in Rawalpindi, was conducted by the agency officers under section 40 of the Sales Tax Act 1990, after obtaining approval from the magistrate. The record containing folders and computers were taken into custody and were being scrutinised by this office. Initial scrutiny of the record corroborated huge suppression of sales as well as existence of various concealed and Benami accounts for parking undeclared sale proceeds.
During the investigation, it was learnt that the sale proceeds of the unit are being parked in two Benami accounts. One account is in the name of husband of proprietor, and the other account is in the name of an employee. Huge amount of credit entries were found in these accounts. During the last five years, Rs 20.6 million were deposited in the Benami account in the name of an employee and Rs 122.8 million were deposited in the Benami account in the name of another person.
The agency has analysed record retrieved from its registers and computer has unearthed evidence of huge concealment of sales being committed. Taxable supplies made by the unit from tax years 2012 to 2014 have been found at Rs 201 million on which sales tax has been evaded. These taxable supplies were made from three outlets located in Islamabad, Rawalpindi, and Lahore. Sales tax on these supplies was due as per SRO 1125 of 2011, but was evaded knowingly and dishonestly.
The scrutiny of record shows that massive suppression of receipts has been committed by the taxpayer. Confirmed receipts of the unit during tax years 2012 to 2014 amount to more than Rs 200 million, whereas the taxpayer only declared her turnover at Rs 13.4 million. Hence, the suppression amounting to Rs 220 million approximately has been confirmed, which will be added to her income for the relevant years.
The analysis of the record further revealed that evidence of foreign source income of fashion designer has been established, with receipts coming from USA and UK. Receipts from foreign source income at approximately Rs 30 million have been found from her record. However, instead of declaring this income, the taxpayer claimed foreign remittance in her returns to mislead the tax authorities, sources added.