FTO uncovers fake companies registered with FBR operating since 2008

FTO uncovers fake companies registered with FBR operating since 2008

The Federal Tax Ombudsman (FTO) has recently exposed significant inefficiencies within the tax authorities, revealing the existence of fake companies that have been registered and operating since 2008.

These fraudulent companies were registered with the Federal Board of Revenue (FBR) using stolen Computerized National Identity Cards (CNICs). The investigation was initiated following a complaint lodged by Ghazi Hammad Haider, a salaried individual, whose original CNIC was stolen along with his mobile phone on July 17, 2007. Subsequently, two fake companies were registered with the FBR Karachi using his stolen identity.

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Despite the timely filing of the complaint and the subsequent notification of the concerned field formations of the FBR, no corrective measures were taken, and the external fraudsters and their internal collaborators were neither identified nor pursued.

The stolen CNIC was used to establish fictitious business entities, register for income tax through IRIS, obtain sales tax registration, open bank accounts, and file fraudulent income tax and sales tax refunds. The fraudsters even managed to maintain an active and operational status within the taxpayer’s profile inquiry in IRIS, indicating the complicity of the FBR.

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The fraudulent companies conducted business transactions and operated fake bank accounts. They regularly filed annual income tax returns since 2008 and monthly sales tax returns since 2012, exposing negligence, incompetence, inefficiency, and ineptitude in the administration and discharge of duties and responsibilities.

In response to the FTO’s report, the Chief Commissioner of RTO-II Karachi conducted an investigation and submitted a detailed report on the issue on April 05, 2023. According to the chief commissioner, a physical verification of the questioned business (fake companies) was conducted by Inspector Inland Revenue Mumtaz Ali Nizamani on May 14, 2012. The inspector confirmed in writing that the business was a legitimate manufacturer/importer/exporter.

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This physical verification report was subsequently forwarded by the Chief Commissioner, along with relevant records and documents, to the joint director of the central registration office at PRAL Islamabad for necessary registration under the business name “M.A.K. Packages.”

Further investigation revealed that sales tax returns were regularly filed from August 2013 to December 2023, indicating zero activity. However, taxable activity was declared between June 2012 and July 2013.

The FTO’s findings depict a distressing state of affairs regarding the FBR’s internal controls and vigilance. The FTO made the following observations:

1. The repeated notifications from the complainant regarding the theft of the CNIC failed to raise any alarms for an extended period. It was only after the intervention of the FTO office that the fake units were finally suspended and deregistered. This highlights a significant lapse in oversight and action.

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2. The entire burden of responsibility seems to have been placed on one inspector, who is already out of service. According to the department’s version, no one else in the hierarchy appears to have been involved in this blatant case of tax fraud. This suggests that the remaining statutory and supervisory tiers may be merely cosmetic, allowing an inspector to manipulate the entire system.

3. Thus far, no efforts have been made to identify the true beneficiaries of this fraud, nor have the officials/officers responsible for dealing with the fraudulent units been named or questioned.

The FBR has been recommended to assign this case to the Directorate General of I&I for a professional inquiry based on the discussions and findings presented.

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