Karachi, October 16, 2024 – In a decisive move to dismantle the entrenched practice of sales tax fraud, the Federal Board of Revenue (FBR) has unveiled a robust strategy aimed at curbing the use of fake and flying invoices.
These fraudulent invoices have long enabled tax evasion and illegal refunds, creating significant losses to the national exchequer.
According to official sources, the FBR has issued stringent directives to its regional tax offices (RTOs) across the country, mandating them to aggressively target not only the perpetrators behind these fraudulent schemes but also the beneficiaries—legitimate firms complicit in such activities. The new measures represent a departure from past efforts, which focused primarily on suspending or blocking dubious firms. The FBR has recognized that these methods have proven insufficient, as fraudsters easily create new registrations to perpetuate their schemes.
The FBR stated that while suspending non-existent or fraudulent firms is a necessary step, it has not been effective in addressing the root of the problem. “Bogus firms can vanish overnight, leaving no trail for recovery,” the FBR explained. The inability to recover taxes from these non-existent entities has led to mounting tax demands without resolving the underlying issue of fraudulent invoicing.
To combat this, the FBR has instructed RTOs to concentrate on tracing and prosecuting the actual buyers and suppliers involved with these fake firms. “It is imperative that we target the real culprits, who are knowingly purchasing or selling invoices without the physical transfer of goods, with the sole purpose of evading taxes or claiming illegal refunds,” the FBR directive emphasized.
The FBR’s orders call for immediate enforcement actions under the relevant assessment and penal provisions of the tax code, ensuring that those who have benefited from these fraudulent schemes are held accountable. Moreover, the agency stressed the importance of precision in drafting show-cause notices and legal orders. Weak or vaguely worded notices often lead to the collapse of cases during appeals, providing undue relief to the accused.
“Too many cases have failed at the appellate stage simply because the orders stated that purchases were made from a suspended or blocked entity. This is insufficient. It must be explicitly shown that the beneficiary acted with full knowledge of the fraudulent nature of the transactions,” the FBR instructed, adding that it is crucial to demonstrate intent to evade taxes or claim illicit refunds.
By directly targeting beneficiaries and improving the legal robustness of its actions, the FBR is signaling its commitment to eradicating this pervasive form of tax fraud and strengthening the integrity of Pakistan’s tax system.