ISLAMABAD: The Federal Tax Ombudsman (FTO) has unearthed glaring discrepancies in rules that facilitated a tax evasion of Rs5.5 billion in the steel sector and suggested ways for recovery from evaders.

The ombudsman in its findings recommended to the Federal Board of Revenue (FBR) to re-locate the jurisdiction of steel cases from the Corporate Tax Office (CTO) Lahore to Large Taxpayers Office (LTO) or Regional Tax Office (RTO) Lahore for more independent and effective recovery proceedings.

Similarly, any officers/officials having any link in the past, with the cases of steel melters must not be associated or assigned the fresh jurisdiction of these cases.

FTO Legal Adviser Almas Ali Jovindah said it has also been recommended to recover the loss incurred on a priority basis through its investigation arm—Directorate General Intelligence and Investigation Inland Revenue Service.

He further said that the recovery should be based on Lahore based steel sector, especially with the focus on probing all cases of exclusion certificates.

The copy of the ombudsman report recommended a feasible and conclusive way out to the FBR for affecting recoveries of evaded government revenue by way of misusing Rule 3(A) of Rule 58H of Sales Tax Special Procedure Rule 2007 introduced through SRO421 of 2014 on June 4, 2014.

To facilitate the steel sector, Special Procedure Rules were introduced in 2007. According to these rules, collection of sales tax from steel melters/re-rollers/composite of melters and re-rollers having single electricity meter was charged at specified rates under Rule 58H of Sales Tax Special Procedure Rule, 2007.

The levied sales tax was collected through monthly electricity bills based on the consumption of electricity. However, subsequently, in the year 2014, Sub-Rule (3A) was inserted under Rule 58H which was in force from June 4, 2014.

After this amendment, the commissioners of income tax were empowered to collect sales tax directly from the steel melters and re-rollers after according necessary adjustments in lieu of collection of sales tax at the import stage and by issuing an adjustment/exclusion certificate in this regard.

The discrepancies were earlier identified by Director General External Audit, then followed by Public Accounts Committee and then by the FTO secretariat. The issuance of exclusion certificates was a clear violation that causes revenue losses.

The discrepancies identified include the issuance of exclusion certificates against cheques/pay orders instead of payment to the treasury/national exchequer and returning of pay orders with illicit motives to registered persons after the issuance of exclusion certificates.

During the investigation, it was also identified that the pay order of one party was used in favour of the sales tax number of another party and for the issuance of exclusion certificates to unregistered persons. Moreover, the use of pay orders for deposition in treasury for a later period of a registered person was also noted and no action was taken in cases of bounced cheques.

Published in Dawn, April 16th, 2023

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