ISLAMABAD: The integrated point of sales (POS) system of the Federal Board of Revenue (FBR) has claimed its first case of sales tax fraud of Rs500 million by a leading shoe retailer.

The case, which was highlighted in a report laid before the Senate Standing Committee on Finance and Revenue, was unearthed when officials noticed discrepancies in the sales tax filings of Metro Shoes – namely that their business seemed to be in decline compared to the same period in 2020 – the year the Covid-19 pandemic took a massive toll on businesses.

Intrigued by the apparent misfortune of the company, the spot checkers found that despite all invoices bearing FBR bar-code issued to the customers only a small percentage was uploaded, which led to detailed investigation into the company’s accounts.

The FBR had started a very ambitious project a few years ago of integrating sales of big retailers with its online system to record sales and detect any evasions in sales tax as well as income tax. As per estimates, the retail sales is worth more than Rs20 trillion, which is mostly out of taxnet currently.

The report, a copy of which is available with Dawn, shows that Metro Shoes engaged in the retail sale of women’s shoes, bags, and accessories through a chain of 45 retail branches spread across Pakistan. The integration of all these branches with the FBR POS system was completed on October 27 last year.

The report shows the analysis of sales tax profile from July to October 2021 from a comparable period of last year which reveals that sales as well as output tax declined despite all positive factors during the period. As a result, the Large Taxpayers’ Office (LTO), Islamabad, constituted a monitoring team to visit the premises of the taxpayer regularly.

The LTO’s enforcement zone initiated proceedings into the case and impounded records from the head office of Metro Shoes located in Rawalpindi as well as its retail outlet of F-7 Islamabad. The first assessment report confirmed suppressing of actual sales from tax authorities and issuing fake invoices to customers.

The report mentioned that the taxpayer’s legal consultant worked out the evaded sales tax at Rs400m from January 2017 to October 2021. This amount did not include penalties and default surcharge. But the tax officials’ calculations showed tax evasion of Rs500m. However, this does not include income tax liability on concealed income for the five tax years — 2017-2021.

The report, however, mentioned that complete verification of the sales data for the last five years is underway to quantify the actual amount of tax evasion.

The first FIR was registered on December 9, 2021, against the proprietors and others for electronic sales suppression and issuing of fake invoices. A copy of FIR was submitted at the Special Court (Customs, Taxation, & Anti-smuggling) Rawalpindi, the relevant court holding jurisdiction of this criminal case, on the next day. It was found that a fraudulent and dual POS system was put in place for cheating the FBR, according to the report.

Published in Dawn, January 12th, 2022