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Monday, May 2, 2011

Fraudsters conning govt out of Rs240bn

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  1. The tax authorities have started an extensive exercise to identify potential areas to be taxed in the upcoming budget, but they seem unwilling to evolve a strategy to check bleeding of Rs20 billion a month in refund payment against fake and flying invoices to bogus companies operated by fraudsters, Dawn has learnt.
    The issuance of fake and flying sales tax invoice claims is rampant in the tax machinery for the past many years. And tax machinery apparently seems helpless to book such people, who are causing billions of loss to the national kitty every month, an easy way of speed money for both fraudsters and tax officials.“We have conducted an exercise a few years ago, which showed that tax machinery was losing around Rs240 billion (Rs20 billion a month) against claims of fake and flying invoices,” a former member sales tax, who requested not to be named, told Dawn on Saturday.
    Fake invoices are issued by bogus companies, which did not do any business activity. They claim refunds against those invoices issued against fake companies from the sales tax department without paying a single penny on raw materials. And flying invoices are used by registered taxpayers for claiming undue refunds from the tax department showing excessive use of raw materials.A senior sales tax official told Dawn that there were two areas, where fake or flying invoices were issued and used for claiming undue refunds from the tax department. According to the official, some fraudsters claimed refunds against fake export documents who are operating in the zero-rating sector to claim refunds on raw materials used in the export proceeds only in papers.
    And in most of the cases, tax officials have not fixed a ratio between input (raw materials) and output (finished products), which also provide a sufficient cushion to taxpayers for claiming undue refunds. As a result, the consumption of raw materials used in the same product by different taxpayers varies that shows that some of the taxpayers are drawing undue refund from the tax department.
    “This is one of the grey areas, which raised the need for buying flying invoices to claim refunds against excessive consumption of raw materials,” the official said, adding until these loopholes are plugged in the business of purchasing and buying flying invoices will boom at the cost of national kitty.
    Flying invoices are sold by registered taxpayers, who have surplus invoices, as they did not issue invoices to most of the buyers of goods. As a result, these invoices become surplus and easily available for selling to those people who wanted to claim undue refunds from the tax department.
    This fraud in the sales tax department has gained more importance recently following raids by the Customs Intelligence Wing of the Federal Board of Revenue (FBR) which identified thousands of fake companies involved in the crime in Lahore and Karachi. “No one has ever taken initiative to launch a drive against these fraudsters,” an official in the Customs Department told Dawn.
    In the past couple of months, the customs intelligence wing has unearthed more than Rs25 billion frauds of undue refund payment against fake and flying invoices. “This is a tip of the iceberg,” the official claimed.
    Alone in Karachi more than 155 dummy and fictitious firms were discovered, who issued fake and flying invoices to more than 5,000 registered persons causing a revenue loss of Rs14.34 billion.
    Similarly, another 241 firms were involved in issuing fake and flying sales tax invoices in Lahore leading to a revenue loss of Rs9.8 billion.
    According to the tax official, FIRs have been lodged against the culprits. “This will be the first ever criminal investigation against the fraudsters in the history of the tax department,” the official claimed. But these detections were made mostly in those cases where fake invoices were issued.
    It is believed that a large number of dummy firms are involved in issuance of fake and flying invoices in major cities. These firms are operated by the cartels of fraudsters, who are said to have established contacts in the power corridors.
    For detection of flying invoices, the official said, the government will have to revive the audit of taxpayers and used skills of thousands of auditors who had been drawing salaries and other privileges from the government but were barred from conducting audits of taxpayers.
    Similarly, it would now be unclear whether the customs intelligence wing could continue detection of frauds in the sales tax, as by now it was integrated with income tax department as part of the World Bank-funded project. The two departments were clubbed together as Inland Revenue.
    In principle, now it is the responsibility of the Inland Revenue department having the largest human resources to work out a strategy for countering the menace, a tax official suggested.
    A senior tax official suggested that fake invoices could easily be detected through computer auditing as now all returns were filed electronically by the taxpayers. And for flying invoices, the government will have to fix the input output ratio which will automatically discourage the buying of flying invoices.
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