KARACHI, Oct 31: The Central Board of Revenue (CBR) has unearthed a scam of Rs34.7 billion ($578 million) in import of raw material where an importer, by misusing income tax exemption certificates, deprived the national exchequer to the tune of Rs2.08 billion ($34.71 million) in revenue with the connivance of customs authorities.
Sources inside CBR told Dawn on telephone from Islamabad that an inquiry held in this regard revealed that billions of rupees tax had been evaded by exceeding the exemption limits allowed by the income tax department for import of industrial raw material by a commercial importer.
Giving some details the sources said that a commercial importer, who did not only disclose himself as an industrial consumer of various plastic moulding compounds, also used a different company name with his own company’s National Tax Number (NTN) for the evasion of 6 per cent income tax at customs stage.
As a result of this the national kitty also suffered loss of huge amounts in sales tax as there never existed any manufacturing activity and the collectorate of sales tax (Audit), Karachi and local income tax office could not trace an industrial set-up on the address mentioned by the importer in his documents.
The CBR sources said that the importer for the last so many years had been understating the landed value of raw material, which provided a cover to avail the exemption limits allowed by the income tax department.
However, it is pertinent to note, the sources said, that had the Customs authorities restricted the non-deduction of income tax on import of raw material imported over and above the landed or import value, as allowed by the income tax authorities, the importer could not have succeeded in causing such a huge loss to the national kitty.
Other details given by the CBR sources reveal that the exemption from deduction of income tax was granted on imports of raw material by tax department on NTN 10-16-0280841 valuing Rs780 million ($13 million), whereas customs authorities somehow allowed exemption from deduction of tax on goods valuing at Rs34.7 billion ($578 million).
Contrary to this, the actual exemption certificates issued by the income tax department were for total import valuing at Rs782.16 million ($13 million) at which income tax (withholding) at 6 per cent at import stage comes to Rs46.8 million ($0.78 million).
This means the actual imports made by the importer were wrongly allowed by the customs authorities stood at Rs34.7 billion ($578 million) at which income tax deductible at the rate of 6 per cent stood at Rs2.08 billion ($34.71 million).
The CBR authorities, who held the inquiry, were of the firm opinion that all this was possible with the connivance of customs authorities because allowing of income tax exemption over and above the limits fixed by exemption certificates could not be overlooked for such a long period starting from the year 2003 to 2006, sources added.
It is also interesting, the sources said, that the importer managed to mislead the authorities by declaring himself as a manufacturer whereas he had been a commercial importer. Consequently, the high-ups in the CBR are of a firm view that this case is of a tax fraud and not tax evasion.
The sources said that the customs authorities while allowing exemption from income tax did not take the cognizance of the fact that the landed value of imported goods was 100 times more than that of the approximated landed value mentioned in the exemption certificates.