Tax ombudsman finds irregularities in jewellery trade, recommends probe against FBR officials

Updated October 23, 2019

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Findings reveals gold worth billions of rupees is being exported using fake form-E. — AFP/File
Findings reveals gold worth billions of rupees is being exported using fake form-E. — AFP/File

ISLAMABAD: President Arif Alvi has rejected the Federal Board of Revenue’s (FBR) representation against the Federal Tax Ombudsman (FTO).

The FBR had appealed the president against the recommendations of the FTO regarding illegal gold trade and initiation of inquiry against tax officials.

FTO Mushtaq Ahmad Sukhera, exercising his jurisdiction, began investigations into the alleged systemic maladministration in cases detected against gold/jewellery exporters and failure of the FBR in the regard to take due action against violation of import and export policy orders under the Customs Act, 1969.

The ombudsman had recommended the FBR to initiate departmental inquiry and take disciplinary action against those officials who had failed to identify or reprimand those found involved in illegal imports and exports.

The FTO findings revealed that gold worth billions of rupees was exported using fake form-E or in some cases not exported against imported gold.

The FBR, on the other hand, was not happy with the ombudsan’s findings and lodged a representation before the president against its recommendations.

The decision issued by the president said that it has been noted that by taking up the matter in suo moto jurisdiction, the FTO has not commited any violation; rather the step is laudable, suggestive of reforms and improvements in the system.

The statement further said the recommendations are relevant in curbing the menace of tax evasion. Further, it advised the revenue collection functionaries of the state to take necessary steps to implement such recommendations wholeheartedly in order to improve its functions.

“There is no justification made out to upset the recommendations of the learned FTO, nor there is any ground for interference with the aforementioned directions”, observed the president’s order.

The suo moto jurisdiction was taken after a media report alleged misuse of import-cum-export facility of gold, jewellery and other precious metals at various customs stations. The reports said that some jewellery exporters failed to remit foreign exchange and Customs Stations Department did not take cognisance in the matter due to jurisdictional issue.

Prima facie, the FBR did not put in place any institutional mechanism to stop abuse of scheme regulated through concessional SROs issued by the Ministry of Commerce.

Consequently, the importers-cum-exporters hoodwinked the department with impunity especially in cases where concession available under entrustment/elf-Consignment Scheme was misused.

The FTO had recommended the FBR and the Federal Investigation Authority (FIA) to initiate inquiry against all the officers, departments and traders involved in misuse of imports-cum-exports facility in respect of gold, jewellery and other precious metals resulting in massive loss of revenue to the national exchequer.

The FTO observed that the export promotion scheme did not put in place institutional mechanism to stop abuse of entrustment/self-consignment scheme regulated through concessional SROs issued by the Ministry of Commerce. Therefore, the importers-cum-exporters deceived the departments with impunity especially in cases where concession available under the entrustment/self-consignment scheme was ­misused.

The entrustment scheme provides facility for export of jewellery against imported gold supplied as partial advance payment, by the foreign buyer in the manufacturing of jewellery to be exported. In addition, the exporters are required to only export eligible and authorised items within 120 days from the date of import.

Under self-consignment scheme, export of gold jewellery is made from locally procured gold and gemstones and sale proceeds are realised in foreign exchange. According to the scheme, the registered exporter shall apply to the Trade Development Association (TDAP) of Pakistan for export authorisation. The sale proceeds shall be realised within 120 days from the date of export and the commercial banks shall ensure that sale proceeds are repatriated within the same period; otherwise, commercial banks shall inform the State Bank of Pakistan as well as the TDAP.

The FTO observed that during special audit, the Directorate General of Internal Audit detected serious irregularities relating to Model Customs Collectorate (MCC) Peshawar, MCC Export Port Qasim, Karachi, MCC Islamabad and MCC Preventive Lahore.

It was also observed that exporters also made repeated exports. Admittedly, foreign exchange was not repatriated against Forms-E, which subsequently turned out to be fake.

Moreover, there was also no explanation as to how subsequent exports were allowed when it was evident that foreign exchange was not repatriated within the specified period.

This reflects the negligence, inattention and ineptitude in discharge of duties and responsibilities by the concerned officials.

It is rather strange that the MCCs failed to recover adjudged amount of fine imposed on the clearing agents, who are, otherwise, licencees of the department. Perusal of the record shows that either no stay had been granted or the period for stay of order under the appeal had also been lapsed.

However, the department had not initiated recovery proceedings without which no explanation could be advanced.

This failure to do so reflects negligence, inattention, inefficiency and ineptitude in discharge of duties and responsibilities by concerned officers/officials of the department, which are tantamount to maladministration.

Published in Dawn, October 23rd, 2019