Islamabad, December 11, 2024 – The Federal Board of Revenue (FBR) has officially updated the definition of sales tax fraud, refining its core language to ensure greater clarity and prevent misinterpretation. This updated definition, which comes as part of the revised Sales Tax Act of 1990, will apply to the tax year 2025 and aims to strengthen the enforcement of sales tax regulations across Pakistan.
According to the FBR, sales tax fraud now includes any intentional attempt to understate or underpay tax liabilities, or to overstate entitlements to tax credits or refunds, in direct violation of the duties and obligations set forth under the Sales Tax Act. This can be achieved through various deceptive practices, such as submitting false returns, statements, or documents, or by deliberately withholding accurate information. The intent behind these actions is to cause a loss of tax revenue to the government.
The updated definition explicitly includes several fraudulent practices that fall under the scope of sales tax fraud. These include:
(a) Suppression of taxable supplies, where goods or services liable to tax under the Sales Tax Act are deliberately concealed.
(b) False claims of input tax credit, where businesses wrongfully claim tax credits they are not entitled to.
(c) Failure to issue tax invoices for taxable goods, making supplies without proper documentation, which violates both the Act and the regulations it outlines.
(d) Issuance of tax invoices without actual supply of goods, resulting in inadmissible claims for input tax credits or refunds.
(e) Tax evasion through undue claims of input tax credits or refunds that are not legitimate, using means beyond the illegal actions described in clauses (a) to (d).
(f) Failure to deposit collected tax amounts, where businesses collect tax but do not remit it to the government within the prescribed period of three months from the due date.
(g) Falsification of financial records, whether by altering invoices or creating fake documents or accounts, with the aim of evading tax or obtaining unauthorized refunds.
(h) Tampering with or destroying material evidence or documents required to be kept under the Sales Tax Act, whether by digital or manual means.
(i) Handling goods that are liable to confiscation, which includes actions such as concealing, supplying, or purchasing goods that should be confiscated under the law.
(j) Failure to register under the Sales Tax Act while making taxable supplies, a clear violation of registration requirements.
(k) Intentional omission or action designed to cause a loss of tax revenue, whether by omission, manipulation, or other means.
The FBR has clarified that any action or omission under these categories will be treated as intentional unless the accused can prove they had no knowledge, motive, or intent to commit the fraud. This strengthened definition is aimed at ensuring that those who attempt to evade taxes are held accountable and that the government can better safeguard its tax revenues.
