More CFOs Arrested as FBR Intensifies Crackdown Against Tax Fraud

The Directorate General of Intelligence & Investigation-Inland Revenue has arrested four Chief Financial Officers (CFOs) of Faisalabad-based textile units and a CFO of a Lahore-based battery manufacturer on the charges of abetment/connivance in sales tax fraud.   The Large Taxpayer Offices have already convened meetings with many CFOs at LTOs and apprised them about possible arrests in case of evidence of tax fraud or illegal tax credits/adjustments.   The Regional Directorates of Intelligence & Investigations Inland Revenue arrested five accused across the country including one of the leading fraudsters engaged in creating chains of dummy businesses and four members of top management of end users/beneficiaries (CFOs) responsible for the tax fraud involving billions of sales tax loss to the national exchequer.   While taking action in a registered FIR involving billions of rupees in sales tax fraud, the Directorate of Intelligence & Investigation-Inland Revenue, Hyderabad, has arrested the Chief Financial Officer (CFO) and Purchase Officer of a leading Lahore-based battery manufacturer on charges of abetment/connivance in Sales Tax fraud by claiming fake input tax on Lead. In this intelligence-based operation, the Hyderabad team was assisted by the Directorate Lahore. The revenue loss caused by the arrested accused alone is more than a billion rupees.   In a separate intelligence-based operation, the Directorate of Intelligence & Investigation-Inland Revenue, Faisalabad, has arrested Chief Financial Officers (CFOs) of two sister concerns and leading Faisalabad-based textile unit on the charges of abetment/connivance in Sales Tax fraud by claiming fake input tax on coal. The revenue loss caused by the fraudulent practices involving a gang of fraudsters runs in hundreds of millions of rupees to the national exchequer.    An FIR had already been registered against the suppliers, beneficiaries, connivers, and others. In another development, the pre-arrest bail of accused Taswar Shahid, nominated in several FIRs, was rejected by the Court on Monday. Subsequently, he was arrested from outside the Courtroom. He is a leading member of the gang operating fake and dummy units for generating fake sales tax input, which is used by the end users/beneficiaries, causing billions of losses to the national kitty.   These arrests have been executed in the wake of the country-wide crackdown against the organized mafia and beneficiaries involved in sales tax fraud and in line with FBR’s enforcement measures to enhance tax compliance.   This is the first time that the CFOs of big textile companies have been arrested. The FBR has asked the CFOs to pay the due amount of unpaid taxes of billions of rupees including principal amount and additional tax/penalties to avoid prosecution, sources revealed.   According to sources, criminal proceedings have been initiated against the CFOs of the companies involved in signing the approval of fraudulent sales tax returns.   The Federal Board of Revenue has already identified and gathered evidence of tax fraud in different sectors which include 11 cases in the battery sector, 897 cases in the Iron & Steel sector, and 253 beneficiaries of fake input claims on the purchase of coal. A large number of cases have been identified for criminal proceedings on account of sales tax fraud inclusive of the above-mentioned sectors.    The persons in the supply chain of these cases have manipulated the input tax adjustments, debit and credit notes and other means to defraud and dodge the return filing system. The total amount of sales tax fraud committed is Rs. 227 Billion.   A massive enforcement crackdown has been planned and will be implemented in the coming weeks. The finance minister also stated that sales tax fraud is a criminal offence and carries strict action under law which includes arrest and imprisonment of up to 10 years other than heavy penalties and fines. Action would be taken against owners of the business, in cases of sole proprietorships, partners in cases of firms (association of persons), and Directors, CEOs, CFOs, and other authorized persons of the company. Due to this huge prevalence of tax evasion, enforcement measures including arrests and registration of criminal cases along with improvements in the reporting system were intensified during the last financial year, resulting in a significant decrease in the claim of fake input tax in FY24 across all the sectors. However, despite these efforts massive evasion persists. To counter this evasion, more intensified enforcement measures have been planned.   Out of Rs. 3,400 billion in tax evasion identified in Sales Tax, the FBR has found that only 14p percent of 300,000 manufacturers are registered. Many of the registered entities are also involved in misreporting turnover, excess input tax claims, and the use of fake and flying invoices.