FBR to fathom quantum of tax evasion

SOHAIL SARFRAZ

ISLAMABAD: The Federal Board of Revenue’s (FBR) intelligence agency has sought details of 37 major cases of electricity theft from the Federal Investigation Agency (FIA) to ascertain the amount of duties and taxes evaded by units through suppression of actual production and sales during production process.

Sources told Business Recorder here on Tuesday that the information of 37 cases had been sought by Directorate General of Intelligence and Investigation Inland Revenue from the FIA to check the quantum of duties and taxes evasion by units involved in power theft. In cases of electricity theft, there is definite evasion of duties and taxes due to concealment of income and suppression of production and sales.

The FBR’s intelligence arm has asked the FIA to provide necessary details including meter number, owner of unit, amount involved in electricity theft and other pieces of information required to workout the amount of taxes evaded by such units.

Sources said that both the electricity and gas are source of energy for manufacturing of finished products. The production is directly linked with the consumption of gas/electricity. The tax evasion is also related to the amount of gas/electricity theft used for concealment of production. Gas/power thefts have been used for concealing production/sales and concealment of sales tax, federal excise duty (FED) and payable income tax.

Referring to a case, sources said that a leading unit of Faisalabad was involved in gas theft to suppress actual production for evading taxes to the tune of billions of rupees by showing low consumption of gas used in manufacture of finished products.

The Chief Commissioner Inland Revenue Regional Tax Office (RTO) Faisalabad has submitted a report to the FBR Chairman regarding the mega scandal of more than Rs 18 billion tax fraud by an industrialist operating a unit in Multan.

The scam is mainly related to the gas theft by a unit which also resulted in increased volume of the suppressed production of the finished products, sources said.

Details of the issue revealed that proceedings on the issue were initiated against the taxpayer under section 122(5) of the Income Tax Ordinance, 2001 on the basis that total credit entries in the bank accounts of the taxpayer for the tax periods of July 1, 2007 to June 30, 2011 did not tally with the declared turnover for the same period. Additional Commissioner Audit obtained the reconciliation of the bank accounts and observed in his order that an amount of Rs 50,338,321,792 was interbank transferred from one account of the taxpayer to the other. No adverse inference was therefore, drawn by him.

The assessment record of the case was requisitioned by Director I&I-IR Faisalabad. The record was sent in five volumes and the same remained in the custody of the Director I&I-IR, Faisalabad till July 3, 2013 and was returned without any specific observation. Later on, the Director I&I proposed the invocation of section 122 (5A) to reopen the case for the verification of inter bank transfers. Show Cause notices for reopening have been issued and the same have been stayed by the High Court.

About the gas theft issue, sources said that the information was received from Director I&I-IR, intimating that the unit was involved in the gas theft. Sui Gas authorities have charged them with the recovery of Rs 260 million for the period February, 2008 to February, 2009. It was also specifically proposed by the Director I&I-IR in the letter that information should be used through composite audit of the year in which the theft actually occurred to ascertain the volume of the suppressed production attributable to the consumption of this gas. The then Commissioner Inland Revenue Zone-II Multan, instead of selecting the case for composite audit of the relevant tax years, issued notice u/s 122(5) and dropped the proceedings, report of the RTO said.

The order of the Commissioner dated 9.8.2012 was requisitioned by the Director I&I-IR Faisalabad and he observed that “the action taken by the CIR Zone-II, RTO, Multan is apparently aimed at derailing the desired legal proceedings.” The Director I&I-IR proposed that the remedial action u/s 122(5A) may be taken and assessment for the relevant tax years be re-opened.

Commissioner Inland Revenue, Special Zone, Multan has issued four show cause notices for the years 2008 to 2011 encompassing both these issues i.e. the reconciliation of the bank accounts and the gas theft. These show cause notices issued by the Commissioner; have been challenged by the taxpayer in the high Court. The court in its Orders dated 16-06-2014 and 05-08-2014 has suspended the operation of the impugned show cause notices till the next date of hearing. The matter is pending at the level of judicial fora, sources added.