Islamabad, October 10, 2024 – In a bold move to address rampant tax evasion and boost revenue collection, Pakistan has launched a large-scale operation targeting sales tax fraud across various sectors of the economy. Finance Minister Mohammad Aurangzeb and Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial made the announcement in a press conference, revealing that the country faces a staggering tax gap of Rs 3.4 trillion due to widespread fraud.
The FBR’s study on sales tax evasion uncovered significant discrepancies across multiple industries, pointing to a tax gap largely driven by non-compliance and fraudulent activities. According to the report, only 14% of the 300,000 manufacturers required to register for sales tax are properly registered. Furthermore, many of the registered entities engage in practices like misreporting turnover, claiming excessive input tax, and utilizing fake or flying invoices.
The finance minister emphasized that Pakistan collects sales tax in line with international best practices, following the Value Added Tax (VAT) model, which places trust in businesses to collect taxes from buyers. However, he noted with concern that this trust has been breached on a massive scale, particularly in high-profile sectors such as iron and steel, cement, beverages, and batteries.
“These sectors have been exploiting loopholes in the tax system, claiming input tax far beyond acceptable industrial benchmarks,” Aurangzeb remarked, highlighting the deep-rooted nature of the malpractices. Despite the government’s efforts in the previous fiscal year, including stepped-up enforcement measures and enhanced reporting, a substantial portion of sales tax evasion persists.
To combat this, the government is intensifying its crackdown on tax fraud. Finance Minister Aurangzeb outlined that the FBR has already gathered substantial evidence of fraudulent activities in various sectors. Specific cases were identified: 11 in the battery sector, 897 in the iron and steel industry, and 253 instances of beneficiaries making false input tax claims related to coal purchases. In total, the estimated amount of sales tax fraud committed stands at a shocking Rs 227 billion.
“Criminal proceedings are now underway against these offenders,” the minister warned, “and a massive enforcement crackdown is imminent.”
The finance minister reiterated that sales tax fraud is a criminal offense, punishable under Pakistani law with severe consequences, including arrests, hefty fines, and imprisonment of up to 10 years. The crackdown will not only target business owners but will also extend to key executives, including directors, CEOs, CFOs, and other authorized personnel involved in fraudulent activities.
Aurangzeb underscored that the government is fully committed to enforcing transparency and accountability in the taxation system. The planned enforcement measures are expected to be rolled out in the coming weeks, as part of a broader effort to recover lost revenue and strengthen Pakistan’s financial standing.
“The nation can no longer afford to tolerate such widespread tax evasion. We are taking strong action to close these gaps and ensure that all businesses pay their fair share,” he concluded. This operation signals a decisive step towards curbing financial corruption and reinforcing the integrity of Pakistan’s economic framework.