Audit says FBR failed to pursue legal action over short-paid Federal Excise Duty on locally manufactured vehicles
ISLAMABAD: The Auditor General of Pakistan (AGP) has flagged the Federal Board of Revenue’s (FBR) failure to recover Rs223.49 million in Federal Excise Duty (FED) on the sale of locally manufactured motor vehicles, citing weak enforcement by the Large Taxpayers’ Office (LTO) Karachi.
According to the latest AGP audit report, the revenue shortfall occurred during fiscal year 2022-23, when the tax authority failed to initiate legal proceedings against a registered taxpayer despite a substantial short payment of the applicable excise duty.
Tax shortfall identified
The audit report said the case relates to Serial No. 55B of Table-I of the First Schedule to the Federal Excise Duty Act, 2005, as amended through the Finance Supplementary Act, 2022.
Under the law, Federal Excise Duty is levied on locally manufactured or assembled motor cars, sport utility vehicles (SUVs) and other motor vehicles, excluding auto-rickshaws, at prescribed rates.
During the audit, the AGP found that a taxpayer registered with LTO Karachi was liable to pay Rs526.04 million in FED on motor vehicle sales but deposited only Rs302.79 million, leaving an outstanding amount of Rs223.49 million.
The audit stated that the FBR failed to initiate legal proceedings to recover the unpaid amount, resulting in a significant loss of government revenue.
FBR says case under examination
The audit observation was communicated to the tax department in March 2024.
In its response, the FBR said the matter was under examination and processing.
The issue was later discussed by the Departmental Accounts Committee (DAC) during its meeting in December 2024, where the committee directed the department to expedite legal proceedings and submit a comprehensive report.
However, the AGP noted that no further progress had been reported by the time the audit report was finalised.
AGP calls for stronger enforcement
The Auditor General recommended that the FBR complete legal proceedings without further delay and strengthen its assessment, monitoring and enforcement mechanisms to ensure the accurate collection of Federal Excise Duty on motor vehicle sales.
The audit also urged the tax authority to improve oversight to prevent similar revenue leakages in the future.