Karachi, October 16, 2024 – The Federal Board of Revenue (FBR) has taken a significant step towards combatting tax evasion and enhancing fiscal integrity by directing tax offices to assign senior officers with the crucial responsibility of identifying fake and flying invoices.
In response to the rampant issue of fraudulent billing practices, the FBR has mandated that each Chief Commissioner of Income Tax (CCIR) appoint at least two senior officials of impeccable integrity to tackle this pressing challenge within their respective jurisdictions.
Recognizing the sensitive nature of this task, the FBR has emphasized the importance of a dedicated and methodical approach. The responsibility for this function is primarily designated to the Assessment & Processing Cell (A&P Cell), where it exists. The designated officers will be granted unrestricted access to an array of sales tax and Federal Excise Duty (FED) data available on platforms such as IRIS, ITMS, CREST, and FASTER, which are essential for effective data analysis and examination of the entire supply chain.
To ensure optimal performance, CCIRs are instructed to coordinate with the Member of IT to facilitate access for their appointed staff. The FBR underscored the need for these officers and the A&P Cell to gather comprehensive data and conduct thorough scrutiny to ascertain the authenticity of sales tax declarations. This rigorous examination will focus on various characteristics indicative of fraudulent activities, enabling the detection of fake and flying invoices.
Among the critical factors to be analyzed are:
1. High Transaction Volume with Minimal Tax Payment: A notable disparity between the volume of transactions and the net sales tax remitted raises red flags.
2. Equal Purchase and Input Tax Values: Instances where the value of purchases and the corresponding input tax are equal to or exceed the value of outputs and output tax warrant investigation.
3. Unrealistic Carry Forwards and Stock Levels: Consistent carry forwards that appear disproportionately high, alongside unrealistic stock levels, signal potential malpractice.
4. Discrepancies in Wealth Statements: A glaring contrast between a registered entity’s declared capital and its substantial stock holdings is another warning sign.
5. Excessive Use of Credit Notes: Frequent issuance of significant credit notes to evade sales tax obligations necessitates scrutiny.
6. Recent Registrations with High Transactions: Newly registered firms, particularly those with a history of dormant activity, displaying sudden spikes in transactions within two years, require further examination.
7. Registered Addresses in Low-Income Areas: Businesses registered at addresses in economically disadvantaged regions may be scrutinized for legitimacy.
8. Non-Filing or Low-Filing of Income Tax Returns: Entities that either fail to file income tax returns or submit returns reflecting low income despite declaring large transactions should be thoroughly investigated.
9. Inconsistent Nature of Supplies: Instances where the nature of purchases does not align with the nature of supplies indicate fraudulent activities.
10. Focus on Commercial Importers: Special attention will be paid to commercial importers and dealers associated with large corporations, especially those involved in petroleum products, as they are often engaged in issuing flying invoices. Diligently comparing imported goods with the nature of the buyers’ business is expected to reveal discrepancies.
The FBR noted that fraudulent actors typically operate in networks. Identifying the issuer of fake or flying invoices necessitates a meticulous examination of both forward and backward transactions, as outlined in Annex A and Annex C of their sales tax returns. Such scrutiny will unveil other wrongdoers within the supply chain.
Once the data on fake and flying invoices, along with the details of the registered entities involved in these fraudulent activities, has been captured, the staff will also verify the physical existence of these registered persons. Reports generated from these findings will be documented as part of the FBR’s official records.
Through this comprehensive initiative, the FBR aims to fortify Pakistan’s tax framework, enhance compliance, and safeguard the national revenue system from fraudulent practices.