Whereas sales tax profile of the said unit reveals that the taxpayer is declaring no purchases and no sales in the sales tax returns and has been making declaration of 'nil' purchases and supplies despite the fact that the taxpayer has been engaged in significant business activity yielding huge monthly turnover of taxable supplies.
It is pertinent to mention here that evading sales tax knowingly and deliberately is a tax fraud in terms of section 2(37) of the Sales Tax Act, 1990. Based on aforementioned information gathered by the Directorate through reliable sources, duly authorized teams of the Directorate under section 38 of the Sales Tax Act, 1990 under the supervision of Imran Zafar, Deputy Director, Intelligence & Investigation (Inland Revenue), visited the business premises of both these business concerns and resumed substantial records from there.
The resumed records concerning business activity of these firms include sales/purchase ledgers and vouchers, computers containing digital data, bank related record and bill books, etc. Preliminary scrutiny of the resumed records reveals considerable sales tax evasion in both the cases.
The authorized team is conducting detailed analysis of the resumed records and, prima facie, these are cases of massive sales tax evasion and may also result in detection of considerable income tax evasion. This exercise under Section 38 of the Sales Tax Act, 1990 is in accordance with the Federal Board of Revenue's policy of zero tolerance against unregistered businesses and businesses involved in sales tax evasion and more importantly, businesses involved in tax fraud. It is because if unregistered business activity is tolerated, the registered businesses will find it difficult to better compete in the market due to higher prices inclusive of sales tax as non-registered suppliers commonly offer inputs of similar quality for lower tax exclusive prices. Therefore, unregistered businesses discourage registered persons to operate under sales tax net by keeping turnover below mandatory sales tax registration threshold. This could be the possible reason for extremely narrow sales tax base in the country and sales tax evasion and tax fraud leading to sizeable sales tax gap and revenue losses to the national exchequer.