Friday, 22 September 2023
Tax Scam unearths by Federal Tax Ombudsman

FTO orders to probe tax officials involved in sales tax refund scam

The Federal Tax Ombudsman (FTO), in pursuance of Own Motion (OM) investigation powers conferred to him under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance), has ordered to probe irregularities committed by the FBR’s field formations in processing and sanctioning of bogus sales tax refund and directed for initiation of disciplinary and criminal proceedings against the senior officers of Inland Revenue Service of FBR.

The Directorate General I&I-IR, FBR, had issued the “Red Alerts” in such cases to the field formations concerned, but no action was initiated against the fake claimants of income tax refund, and their connivers in the Department, involved in bogus registration, processing, and sanctioning of fraudulent income tax refund and issuance of refund cheques. Furthermore, no action was proposed against the officers/officials of bank branches concerned and the PRAL management.

In the case of M/s China National Electric Wire & Cable Import & Export Corporation (RP), an AOP registered vide NTN 2789363-2 with principle activity of electrical installation refund for Tax Year 2012 amounting to Rs.26.119 million was claimed. In terms of sub-Section (3), tax deducted on the income of a resident person or Permanent Established (PE) of the non-resident person under clauses (a) and (c) of sub-Section (2) 153 of the Income Tax Ordinance 2001 (the Ordinance) should be a final tax. Thus, the income tax refund claimed by the RP, non-resident PE, for Tax Year 2012 was inadmissible.

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Furthermore, after conducting Post Refund Audit (PRA) of the RP for Tax Years 2007, 2008, 2009, and 2011, the Director I&I Lahore also issued an investigation report to the Chief Commissioner-IR RTO Lahore. As per the report, the RP claimed a refund for Tax Years 2007, 2008, 2009, 2010, and 2011, amounting to Rs. 26.778, Rs. 25.264, Rs. 71.151,and Rs. 0.170 million respectively. The Department had, however, already issued refunds for Tax Years 2007, 2008, 2009, and 2011, aggregating to Rs. 123.364 million.

In order to retrieve the loss of revenue, the Directorate I&I also proposed initiation of action for Tax Years 2007 to 2011 under Section 122(5A) of the Ordinance.

The KTBA Proposed the FBR to separate the tax fraud investigation
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Evidently, no action whatsoever was taken by the department on the above Red Alert and PRA investigation report. Therefore, the failure of the department to take timely action on such an important anti-tax evasion exercise carried out by I&I-IR led to serious instances of maladministration on account of certain acts of omission and commission, reflecting improper motives, jeopardizing good governance and transparency in tax administration.

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Federal Tax Ombudsman, while finally disposing of the case, has directed FBR to initiate proceedings for recovery of tax demand created for Tax Years 2007, 2008, and 2009, vide consolidated order dated 05.06.2013, as per law, and remove the officers involved from field postings and initiate disciplinary and criminal action against Ch. Muhammad Tariq, the then Additional C-IR, and Ashfaq Ahmad, the then DC-IR.

Further, The Federal Tax Ombudsman has also ordered disciplinary proceedings against Dr. Sarmad Qureshi, the then Commissioner, CRTO Lahore, and Syed Nadeem Hussain Rizvi, the then Chief Commissioner, CRTO Lahore, in the same scam.


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