FAISALABAD: Some Federal Board of Revenue officials posted in Sahiwal region have inflicted a loss of about Rs2 billion on the national kitty by turning a blind eye to a tax evading firm.

The firm, a lubricants company, not only evaded tax but also claimed excess tax deductions/payments in its declarations.

Sources told Dawn that the officials of the FBR’s regional tax office in Sahiwal had provided illegal favour to the company while finalising its proceedings and accepted the firm’s version that its entire sales for the tax years 2015, 2016 and 2017 came from the petroleum products through petrol pumps. The firm received petroleum commission/discounts from oil marketing companies who deducted tax under section 156-A of the Income Tax Ordinance 2001.

They said the taxpayer [firm] was liable to be registered under the Sales Tax Act 1990. However, no attempt was even made for its registration and no evidence was available to verify the record of its declared volume of sales/purchases of petroleum products.

Analysis of sales tax returns of oil marketing companies (OMCs) reveals sales to the company were Rs972 million in 2016 and Rs5.7bn in 2017 tax years. The remaining purchases by the firm declared in the audited accounts submitted by it were Rs2bn in 2015 and Rs1.4bn each for tax year 2016 and 2017, respectively. These purchases were either not the petroleum products or smuggled products purchased from some unregistered companies, they added.

Source said under section 156-A of the Income Tax Ordinance 2001, sale of such products could not be accommodated. Turnover declared in audited accounts does not commensurate with the number of petrol pumps owned by the taxpayer, they added.

The officials had not examined the profile of the taxpayer wherein for the period relevant to tax year 2015 and 2016 when it was having only three pumps and as of today the company owns only five. Its sales of petroleum products around Rs9.5bn in the tax year of 2018 and and Rs 25bn in 2019 are enjoying exemption from charging of minimum tax. It was not just the case of charging of minimum tax rather further huge tax could have been recovered. The taxpayer was not registered with the sales tax at that time and could not claim credit of Clause 43-C of the Part IV of Second Schedule to the Income Tax Ordinance 2001, sources said.

Audit u/s 177 for tax year 2014, 2015 and 2018 could have been used to determine the facts along with proceedings initiated u/s 122(5A) but those were also compromised; declared results were accepted by the officers and proceedings were closed u/s 122(5A).

Due to the conduct of officials, they said roughly revenue of more than Rs500mn had been compromised.

While finalising the proceedings for the tax years 2015, 2016 and 2017, the officials also ignored the fact that the sales of purchases verifiable from OMCs declarations were also liable to sales tax as no sales tax was paid on these purchases.

They claimed petroleum products have neither been declared by the taxpayer in sales tax returns nor any of the OMCs, they said, adding loss of revenue is estimated about Rs1,136m.

The taxpayer was required to claim expenses against these receipts in return filed under the normal law but he has failed to do the same, hence, the entire carriage receipts were to be treated as income chargeable to tax at normal rate. The taxpayer has declared carriage receipts of more than Rs700m and Rs5bn for 2018 and 2019 tax year respectively. Audit for tax year 2018 has been closed whereas no action has been initiated to date with regard to tax year 2019 u/s 122(5A) of the Income Tax Ordinance, 2001, they added.

An officer of the FBR told Dawn that the issue was being interrogated and those responsible would be fixed.

Published in Dawn, December 14th, 2020