FTO directs audit of all manufacturers for misusing SRO 1125

FTO directs audit of all manufacturers for misusing SRO 1125

ISLAMABAD: Federal Tax Ombudsman (FTO) has directed Federal Board of Revenue (FBR) to conduct audit of all manufacturers who availed the benefit of SRO 1125(I)/2011.

In its suo moto action related to misuse of zero-rated sales tax facility under SRO 1125(I)/2011 the FTO detected systematic flaws and directed, through an order dated May 15, 2019, the FBR to take following measures:

— develop a comprehensive risk management framework in the working of IRIS based sales tax registration rules and revisit the approved risk engine and scores to mitigate the possibility of any misuse of ‘manufacturer status’ by the registered persons;

— “arrange audit of all manufacturers who availed the benefit of SRO 1125(I)/2011 to find out whether ‘manufacturer status’ was granted after fulfillment of requisite conditions and in cases of irregular approvals of manufacturers status fix responsibility on the dealing staff for proceedings under E&D Rules and take necessary measures under law/rules for recovery of losses caused to government revenues;

— direct PRAL and Directorate of Reforms and Automation (Customs) to develop and implement system/software for live data synchronization with WeBOC regarding sales tax registration to ensure blacklisted and suspended taxpayers are not able to import and get undue benefit of SRO 1125(I)/2011; and

— to direct all commissioners to conduct half yearly physical verification of all units registered in their jurisdiction as ‘manufacture’ to verify existence of manufacturing facility of all such units.

The FTO also directed the FBR to submit quarterly implementation report.

In the misuse of the SRO, the findings of the FTO observed that the review of sales tax registration rules and risk score weightage assigned to the risk parameters employed in the registration process which lead to misuse of ‘manufacturer’ status by registered persons for the purpose of tax evasion.

The FTO further observed that the FBR vide SRO 494 (I)/2015 dated June 30, 2015 showed that the IRIS based Sales Tax Registration module failed to timely incorporate the provisions of revised registration rules.

“The requisite changes in IRIS were incorporated after nine months vide SRO 227(I)/2016 dated March 21, 2016.”

The FTO observed that the FBR had failed to take timely action in integrating the registration modules in IRIS system thereby providing opportunity to the unscrupulous elements to take advantage of the weaknesses in the registration procedure of the sales tax department.

“Moreover, modification in the registration module was carried out after nine months of the revision of sales tax registration rules, but evidently no exercise was carried out by the field formation to verify that the existing manufacturers were registered in conformity with the provisions of revised rules.”

The FTO mentioned two cases i.e. M/s. Aran Mart International and M/s. Venus & Co. where FBR had failed to monitor their transactions and took belated action to recover short levied government dues.

In its case specific recommendations, the FTO asked the FBR to direct the Directorate General Intelligence and Investigation to:

a. conduct detailed investigation to find out real owners of M/s. Aran Mark International by interalia utilizing information available in customs clearance documents and instruments used for payment of import duties and taxes; and

b. recover the amount of illegal concessions availed by M/s. Aran Mart International uder the law/rules; and

c. ascertain IR staff responsible for approving ‘manufacturer status’ of M/s. Aran Mart International either through collusion or failure to take precautionary measures for protection of government revenue for taking disciplinary action under E&D Rules and for recovery under the law/rules; and

d. initiate criminal proceedings against the owners of M/s. Aran Mart International along with those delinquent tax functionaries who deliberately and with ulterior motive connived to approve the ‘manufacturer’ status of M/s. Aran Mart International.

The FBR has also been asked to direct the Chief Commissioner IR, Corporate RTO Karachi to recover from M/s. Venus & Co. sales tax amounting to Rs32.799 million and further tax of Rs8.7 million assessed by the department.

The FBR has been further asked to direct the Directorate of Intelligence and Investigation (Customs) to investigate and fix responsibility of clearance of import after suspension of STR of the M/s. Aran Mart International.

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