Audits unmask PKR 123.59 billion sales tax fraud in 19 field offices of Pakistan's FBR

In a stunning revelation, the Auditor General of Pakistan has blown the lid off one of the largest sales tax scams in recent history, exposing the inadmissible adjustment of input tax credit totaling a staggering PKR 123.5 billion.

The fraud perpetrated through fake and flying invoices issued by suspended and blacklisted taxpayers was detected during an audit of the Federal Board of Revenue’s (FBR) operations for the fiscal years 2022-23 and 2023-24.

This explosive audit uncovered that 375 registered persons across 19 field offices of the FBR unlawfully claimed tax credits using invoices issued by blacklisted or suspended suppliers openly violating Section 21 of the Sales Tax Act, 1990.

Shockingly, tax authorities failed to prevent or even detect this widespread malpractice, resulting in colossal revenue loss to the national exchequer.

The discovery is a major success for the audit team, whose meticulous scrutiny and relentless pursuit of financial irregularities led to this groundbreaking exposure. The team not only unearthed the scam but also compelled FBR’s management to respond, despite initial inertia and delays in legal action.

In a series of reports submitted between February and November 2024, the audit highlighted how FBR’s internal controls had collapsed, allowing fraudulent adjustments to go unchecked. The department's evasive responses were called out with some cases—worth PKR 4.79 billion—receiving no reply at all.

The FBR replied that it has launched inquiry of fraudulent tax credits amounting to PKR 2.85 billion in RTO Multan—PKR 31.35 billion is now under legal proceedings, PKR 82.1 billion is being adjudicated and PKR 3.61 million is subjudice in courts.

The audit recommends expediting the inquiry, recovery, legal proceedings, and pursuance of subjudice case. Furthermore, IT-system based controls should be introduced to disallow/defer input adjustments claimed on invoices issued by blacklisted/suspected registered persons.

This issue has been persistently highlighted in previous audit reports for the audit years 2019-20, 2021-22, 2022-23, and 2023-24, respectively. These earlier reports collectively reflected a financial impact of PKR 37,803.17 million. The recurrence of the same irregularity across multiple audit cycles is a matter of grave concern, pointing to systemic weaknesses in enforcement, monitoring, and internal controls within the tax administration.