Pakistan begins arresting CFOs in crackdown on sales tax evasion

Pakistan's Inland Revenue has started arresting chief financial officers (CFOs) of companies involved in sales tax evasion as part of the Federal Board of Revenue's (FBR) crackdown on tax-evading manufacturers.

The Directorate of Intelligence & Investigation-Inland Revenue has arrested the CFO and purchase officer of a leading Lahore-based battery manufacturer on charges of connivance in sales tax fraud by claiming fake input tax on lead.

The CFO of a leading Faisalabad-based textile unit was also arrested on the charges of abetment and connivance in sales tax fraud by claiming fake input tax on coal.

These arrests have been made in the wake of a country-wide crackdown against the organized cartel and beneficiaries involved in sales tax fraud, and in line with FBR's enforcement measures to enhance tax compliance. The arrested CFOs were earlier nominated in FIRs.

Last week, Finance Minister Muhammad Aurangzeb disclosed that Pakistan's large corporate firms and their white-collar management had been involved in a whopping annual sales tax fraud of PKR 3.4 trillion.

Out of the sales tax collection potential of PKR 6.5 trillion, only PKR 3.1 trillion was collected, Aurangzeb said, adding that the management of those companies was directly involved in fraud and aided by their finance departments.

The FBR previously asked CFOs to pay the due taxes amounting to billions, including principal amount and additional tax and penalties to avoid prosecution, sources revealed.

The revenue loss caused by the fraudulent practices, involving a gang of fraudsters, runs in multimillions.

Chairman FBR meets FPCCI

Meanwhile, at a meeting with the office bearers of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), FBR Chairman Rashid Mahmood Langrial agreed that tax rates should be curtailed to reduce tax burden and enhance compliance. However, it was not possible in the current circumstances.

He added that last two to three years have been very painful for the economy but economic indicators have started to show improvement.

The FBR Chairman also expressed optimism that interest rate may be further reduced by 1.5 to 2 percentage points soon. He added there should be no more than 3-4% premium in policy rate compared to inflation numbers.

He opined that the country has no other breathing windows in sight and promoting tax culture is the only viable solution.

Langrial stated that not even the top 5% wealthiest population is filing taxes.

He acknowledged that the FPCCI’s demand that tax evaders should be targeted instead of those already paying taxes for the past many decades was valid.

He also suggested that the model to pay back loans through borrowing even more money is no longer sustainable for the country.

On demand of FPCCI, he advised FBR officials to minimize checking cargo within the limits of Karachi as a pilot study and only inspect or stop on concrete intelligence-based information for large consignments.

He also advised to appoint a grade-19 FBR officer in his staff to be the focal person for day-to-day issues raised by trade bodies, who would be responsible for informing him of any pressing concerns or complains within 24 hours.