Islamabad, Pakistan (June 19, 2024) — The Finance Bill 2024 has proposed significant changes to the definition of sales tax fraud, expanding its scope to encompass a wider array of activities.
This move aims to tighten the regulatory framework and curb tax evasion practices.
Tax experts at A. F. Ferguson & Co. Chartered Accountants have noted that the existing definition of ‘tax fraud’ in the Act is broad and fails to capture specific transactions and events that constitute tax fraud. The proposed changes in the Finance Bill 2024 are set to address these gaps by providing a more detailed and comprehensive definition.
The revamped definition of ‘tax fraud’ under the Finance Bill 2024 includes the intentional evasion of legally due tax or the acquisition of undue refunds through the submission of false returns, statements, or documents, as well as withholding accurate information. The proposed definition explicitly includes the following activities:
1. Suppression of Sales/Receipts: This includes any act of concealing sales or receipts that are chargeable to tax under the Act.
2. False Claim of Input Tax Credit: Fraudulent claims of input tax credits that are not legally permissible.
3. Taxable Supplies Without Tax Invoice: Making taxable supplies without issuing the required tax invoice, violating the provisions of the Act or the Rules.
4. Issuance of Tax Invoice Without Supply of Goods: Issuing tax invoices without actual supply of goods, leading to inadmissible claims of input tax credits or refunds.
5. Undue Input Tax Credit or Refund by Any Means: Evasion of tax through undue input tax credit or obtaining inadmissible refunds by means not covered under the previous clauses.
6. Collection and Non-Deposit of Tax: Collecting tax but failing to deposit it in the prescribed manner beyond a period of three months from the due date.
7. Falsification of Financial Records: Falsifying or substituting financial records, producing fake accounts or documents, or furnishing false information through human, mechanical, or electronic means to evade tax or claim inadmissible refunds.
8. Tampering/Destroying Evidence: Tampering with or destroying material evidence or documents required to be maintained under the Act or the Rules through human or digital means.
9. Dealing with Confiscable Goods: Acquiring, possessing, transporting, disposing of, or dealing in any goods liable to confiscation under the Act or the Rules.
An important addition to the bill is the explanation that any act or omission mentioned in the new definition will be considered intentional unless the accused can prove otherwise. This places the burden of proof on the individual accused of tax fraud, requiring them to demonstrate the absence of intent, motive, knowledge, or reason to believe that they were committing a tax fraud.
The expanded definition aims to close loopholes and ensure comprehensive coverage of various fraudulent activities. By detailing specific acts that constitute tax fraud, the bill seeks to enhance compliance and deter potential evaders.
The Finance Bill 2024’s proposed changes reflect Pakistan’s commitment to strengthening its tax laws and improving tax administration. These measures are expected to significantly reduce tax evasion and increase revenue collection, contributing to the country’s economic stability and growth.