Karachi, December 14, 2024 – The Corporate Tax Office (CTO), Karachi, has made a significant arrest in connection with an alleged sales tax fraud exceeding Rs 1 billion.
Naveed Khan, owner of M/S Blue Sky Traders, was apprehended on December 12, 2024, following investigations into charges of evasion and fraudulent activities under the Sales Tax Act.
Naveed Khan was presented before the Customs and Taxation Court in Karachi on December 13, 2024. The court granted his physical remand until December 17, 2024, allowing further inquiry into the case. If convicted, the accused faces a potential prison sentence of up to 10 years.
The CTO Karachi, a branch of the Federal Board of Revenue (FBR), has been intensifying its crackdown on sales tax fraud, which has become a growing challenge for tax authorities. These fraudulent activities deprive the national exchequer of substantial revenues, prompting stricter measures from the government.
Government’s Response to Sales Tax Fraud
Recognizing the magnitude of the issue, Prime Minister Shehbaz Sharif recently formed a high-powered joint inquiry team to address sales tax fraud comprehensively. This team has been mandated to:
1. Analyze intelligence reports on fraud cases, scrutinize financial transactions, and identify collusion between offenders and public officials or PRAL employees.
2. Evaluate the Federal Tax Ombudsman’s role in legal proceedings and its public communications’ influence on fraud cases.
3. Identify policy and automation loopholes, such as inadmissible input adjustments and fake invoices, while proposing measures to eliminate vulnerabilities.
4. Recommend penal and departmental actions against involved parties to prevent future fraud and address maladministration within the FBR.
5. Suggest enhancements to FBR’s Sales Tax modules, addressing gaps in automation that have allowed recurring scams.
The team has been tasked with submitting a detailed report within 30 days, outlining actionable steps to curb fraud and strengthen Pakistan’s tax regulatory framework.
Strengthening Sales Tax Laws
To combat these practices, the FBR has redefined sales tax fraud under the updated Sales Tax Act of 1990, effective from the 2025 tax year. This definition now explicitly includes deceptive practices such as falsifying returns, withholding accurate information, or inflating tax credits and refunds.
With these measures, the government aims to close loopholes, enhance enforcement, and safeguard revenue against fraudsters.
