Directorate of Intelligence & Investigation (Inland Revenue), Faisalabad raided business premises of two un-registered manufacturing units engaged in manufacture and supply of machinery used in the stone crushing work.
According to the statement issued by the IR Faisalabad, despite the fact that both these units have been making taxable supplies as defined under section 2(41) of the Sales Tax Act, 1990, yet both were not registered under the Sales Tax Act, 1990. Therefore, these units have been violating the provisions of the Sales Tax Act, 1990 and of the Sales Tax Rules, 2006. It is pertinent to mention that making taxable supplies without getting sales tax registration is a tax fraud under the provisions of section 2(37) of the Sales Tax Act, 1990.
Furthermore, income tax profile of one unit reveals that the taxpayer is registered for the purpose of income tax and has been declaring substantial turnover of taxable supplies and is obliged to get registration for the purpose of sales tax. Similarly, other unit had consumed considerable electricity in making taxable supplies, which is evident from the electricity bills of around Rs 1.5 million during 2014, 2015 and 2016, respectively. Therefore, the unit is also obliged to get sales tax registration.
Hence both these units have been involved in evasion of sales tax knowingly and deliberately, which constitutes 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 leadership of Mr. Amir Aslam, Deputy Director, Intelligence & Investigation (Inland Revenue) visited the business premises of both the units and resumed substantial records from there.
The resumed records concerning business activity of these firms include sales/purchase ledgers of manufactured machinery, computers and lap tops 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 Directorate 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, statement added.