ISLAMABAD: The Large Taxpayers Unit (LTU), Karachi, has asked the ARY Communications (ARY) to pay Rs992 million as taxes for 2013 on the plea that the media house had evaded taxes through “misrepresentation, concealment and misuse of exemptions”.

The alleged tax evasion for 2013 has come to light at a time when the ARY has already challenged the LTU’s findings in Income Tax (Appeals), Zone-I, Karachi.

The LTU Karachi chief commissioner told Dawn on Monday that the tax department issues orders when it finds some irregularities in statements and documents submitted by taxpayers. “We have issued the order after fulfilling all the legal formalities,” he said, adding that he was not supposed to divulge taxpayers’ details in public.

According to him, the case was now at the appeal stage as the taxpayer had challenged the LTU findings. “I can’t comment on it.”

On June 30 this year, the LTU Karachi issued an 82-page order which determined ARY’s total income at Rs2.804 billion and that the television network had to pay Rs991.94m to the exchequer.

The ARY was asked to make the payment by July 30. Instead, the network challenged the order in Income Tax (Appeals), Zone-I, Karachi.

According to the Large Taxpayers Unit, ARY Digital FZLLC Networks, a non-resident company, runs a satellite TV channel. The company holds 45.5pc shares in ARY Communications. At the same time, ARY Digital FZLLC Networks gets an exemption certificate on non-deduction of tax from payments on account of sale of airtime to ARY Communications.

The ARY Communications is a resident company and purchases airtime in the form of time slots from its parent associate, ARY Digital FZLLC Networks, Dubai. Another company, ARY Films and TV Production Private Ltd, a wholly owned subsidiary of ARY Communications, is a resident company.

According to the order, all the three companies are in a tripartite agreement for purchase of production from Pakistan and selling to ARY Communications. This agreement allows all three parties to settle their outstanding balances at the end of every financial year.

The tripartite agreement was utilised to allow the three companies to settle their receivables and payables in Pakistan on behalf of ARY Digital FZLLC Networks. The group’s tax assessment showed that it had obtained exemptions by claiming to export locally produced content to the offshore entity “in order to evade local taxes”, the tax authority observed. “The same content was subsequently bought from the same Dubai entity and then telecast in Pakistan,” it added.

A spokesperson for the Federal Board of Revenue told Dawn that no new tax action was taken against ARY Communications. The issue is now pending before the commissioner. “Every taxpayer has the right to challenge a decision in appeal,” the spokesperson said.

According to the LTU order, ARY Communications has filed an amendment to the tax return for 2013. But during the examination of tax record of ARY communication, the amended order was found “erroneous in so far as prejudicial to the interest of revenue on the issue of transfer pricing of airtime/transmission cost”.

After identifying irregularities, a show cause notice was issued to ARY Communications on April 29. The ARY submitted its first reply on May 13, accusing the tax body of conducting the proceedings on the basis of “whims, assumptions and guesswork”.

Published in Dawn, September 3rd, 2019