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Tag: Federal Tax Ombudsman

  • Criminal proceedings against officials of RTO-II Karachi in fake sales tax refunds ordered

    Criminal proceedings against officials of RTO-II Karachi in fake sales tax refunds ordered

    KARACHI: Federal Tax Ombudsman (FTO) has directed tax authorities to initiate criminal proceedings against officials involved in processing bogus sales tax refunds.

    In an own motion in bogus refunds, the FTO observed that failure of the Regional Tax Office (RTO)-II Karachi to initiate action against the persons/officials involved in registration of fake refund payment and retrieval of refund already issued prior to issuance of red alert, was tantamount to maladministration.

    The FTO ordered the FBR to:

    — direct the Chief Commissioner Inland Revenue, RTO-II Karachi to investigate and identify the officials involved in registration of fake RP and initiate legal action against those found involved;

    — identify the officers/officials who were involved in processing bogus sales tax refund on the basis of fake and flying invoices and issuing refund pertaining to tax period August 12 and take appropriate criminal/disciplinary action against them.

    — initiate appropriate action including criminal proceedings leading to prosecution of RPO and recovery of amount of Rs3 million, swindled from public exchequer.

    The FTO directed the tax authorities to ensure compliance of the order within 45 days from the issuance of the order i.e. February 24, 2020.

    The tax ombudsman in its own motion initiated investigation in irregularities committed by the FBR field formations in processing and sanctioning of bogus sales tax refunds during the period 2011-2014 identified by Directorate General Intelligence and Investigation of FBR and ‘Red Alerts’ were issued to the field formations concerned but neither any action was initiated against the fake claimants nor their connivers in the department, who were involved in bogus registration, processing and sanctioning of fraudulent refund and issuance of refund cheques, nor against the related officers/officials of bank branches concerned and PRAL management.

    The FBR issued the instance order in the case of M/s Victory International, engaged in the manufacturing of plastic products.
    The investigation of I&I FBR revealed that the RP got registered on November 11, 2010 as a manufacturer of plastic product but claimed refund of Rs3 million for tax period August 2012 on the basis of fake invoices issued by irrelevant suppliers from paper, steel, electric sectors therefore the whole activity chain was treated as engineered with aim to obtain illegal refund.

  • FBR advised adopting zero tolerance policy against delaying taxpayers’ applications

    FBR advised adopting zero tolerance policy against delaying taxpayers’ applications

    ISLAMABAD: Federal Tax Ombudsman (FTO) has suggested the Federal Board of Revenue (FBR) to adopt zero tolerance policy against delaying processing of taxpayers’ applications.

    The FTO in its news letter for October – December 2019, said that the FBR should introduce zero tolerance policy for delay in processing of applications and talking plea of verification to defend delay in cases which exceed prescribed time limit for finalization.

    The FTO advised following set of proposals for consideration by the FBR to evolve a comprehensive plan to:

    — Develop software for system generated notices about shortcomings in documents, to be intimated to applicants immediately on receipt of refund application. It should also be ensured that notices are properly served on complaints.

    — Observe the due process of law in creation of demand. Prohibit decision without hearing, unless the concerned officer certifies with evidence, in his order, that notice was properly served but the taxpayer is avoiding to attend the hearing despite at least three giving hearings.

    — Process the verification etc as soon as application is received, before intervention of FTO.

    — Hold the person accountable, who prepares, signs and countersigns the comments/replies, which are factually incorrect or irrelevant.

    — Ensure that comments/replies to the FTO are verified by countersigning officers and the departmental representatives appear for hearing after full preparation and consulting the records.

    — Hold the chief commissioner/chief collectors accountable for promptly settling the jurisdictional issues.

    — Ensure cessation of harassment by opening a case which is under investigation, and requirement of specific permission from the chief commissioner for re-opening of old cases after giving reasons of having not opened the case before the taxpayer filed a complaint.

    — Issue directions for observance of office procedures to ensure that the documents received are properly preserved and maintained.

    — Pay attention to requests of aggrieved persons when they visit for pursuing their cases, by establishing help/complaint desk near main gate of offices. A senior officer should daily check the complaints for appropriate action.

    — Implement inspection regime of offices by senior officers to check pendency and other apparent irregularities.

  • FTO committee expresses distress over tax recovery from bank accounts

    FTO committee expresses distress over tax recovery from bank accounts

    ISLAMABAD: The advisory committee of the Federal Tax Ombudsman (FTO) has expressed distress over attachment of bank accounts and coercive recovery by Federal Board of Revenue (FBR) from bank accounts of taxpayers.

    A meeting of the advisory committee of the FTO was held recently and discussed various issues related to refunds and coercive recovery of the FBR from bank accounts of taxpayers, according to the FTO new letter issued last month.

    The committee expressed great distress about the attachment of bank accounts and coercive recoveries. The participants suggested that attachment of accounts may be affected only after Tribunal’s decision.

    On the issue of refunds, the participants observed following:

    Delayed refund is a serious issue which continuously poses challenge to the survival of business community.

    Refund amount should be paid after two stages of appeals in favor of taxpayer, even if department then goes to reference before the higher court.

    An online system for tracking of refund by claimants should be put in place by FBR.

    A system of adjustment of refund in the next return should be devised to get rid of the chronic issue of delayed refund.

    Even after verification of claim, cheques are not issued in time.

    The refund payment system ought to be dovetailed with magnitude of amount as 70-75 percent of refunds fall in the category of up to Rs100,000 only and need automated settlement.

    Compensation for delayed refunds should be ensured as delayed has its own cost.

    Regarding assessment by the tax officials, the FTO advisory committee observed following:

    Arbitrary, coercive and malafide assessment is the root cause of all subsequent tax maladministration and victimization of business community.

    There is no accountability on arbitrary, coercive and malafide assessment.

    There should be some check on the quality of assessment made by an assessing officer.

    At times undated orders are issued.

  • FTO directs FBR, FIA to launch inquiry in misuse of gold, jewellery import

    FTO directs FBR, FIA to launch inquiry in misuse of gold, jewellery import

    ISLAMABAD: Federal Tax Ombudsman (FTO) in a suo moto case directed tax authorities and investigation agency to launch inquiry against officials, department and traders involved in misuse of gold import and other precious metals.

    The FTO asked the Federal Board of Revenue (FBR) and Federal Investigation Agency (FIA) to initiate inquiry against all the officers, departments and importer/exporters involved in misuse of import-cum-exports’ facility in respect of gold, jewellery and other precious metals resulting in massive loss of revenue to national exchequer.

    The FTO finding revealed that gold worth billions of rupees was either not exported against imported gold or was exported against fake form-E.

    The FTO observed that the export promotion scheme did not put in place institutional mechanism to stop abuse of entrustment scheme/self-consignment scheme regulated through concessional SROs issued by the ministry of commerce.

    “As a consequence, the importers-cum-exporters deceived the departments with impunity especially in cases where concession available under the entrustment scheme/self-consignment scheme was misused.”

    The entrustment scheme provides facility for export of jewellery against imported gold supplied as partial advance payment, by the foreign buyer to be used in the manufacture of jewellery to be exported.

    The exporter is required to export eligible and authorized items within 120 days from the date of import.

    Under self-consignment scheme export of gold jewellery is made from locally procured gold and gemstones and sale proceeds are realized in foreign exchange.

    According to the scheme the registered exporter shall apply to the Trade Development Authority (TDAP) for export authorization.

    The sale proceeds shall be realized within 120 days from the date of export and the commercial banks shall ensure that sale proceeds are repatriated in full within 120 days; otherwise, commercial banks shall inform State Bank of Pakistan (SBP) as well as to TDAP.

    The FTO observed that during special audit, the Directorate General of Internal Audit detected serious regularities of Model Customs Collectorate (MCC) Peshawar, MCC (Export) Port Qasim, Karachi, MCC Islamabad and MCC Preventive Lahore.

    It was further observed that repeated exports were made by exporters.

    Admittedly, foreign exchange was not repatriated against Form-E which subsequently turned out to be fake.

    “Ignoring the said fact, there is no explanation that how subsequent exports were allowed when it was evident that foreign exchange was not repatriated within the specified period.”

    “This reflects the negligence, intention and ineptitude in discharge of duties and responsibilities,” the FTO observed.

    The FTO further observed that it was rather strange that the collectorates had failed to recover the adjudged amount of the fine imposed on the clearing agents, who are, otherwise, licencee of the department.

    Perusal of record shows that either no stay had been granted or the period for stay of order under appeal had been lapsed. But the department had not initiated recovery proceedings for which no explanation could be advanced.

    “This again reflects negligence, inattention, inefficiency and ineptitude in discharge of duties and responsibilities by concerned officers/officials of the department which are tantamount to maladministration.”

    The FTO further said that the position emerged on the basis of information provided by TDAP and SBP, reveals that there is a gap between the value of import and value of export and lack of data synchronization related to data provided by the TDAP and SBP.

    It appears that the TDAP has not put in place any mechanism of monitoring and reporting of exports and imports taking place under SRO 760(I)/2013 dated September 02, 2013. In the absence of authentic and complete data of import and exports under the said SRO, no meaningful analysis can be carried out.

    The FBR recommended to the FBR to direct the chief collectors (North), (Central) and (Enforcement) South to initiate departmental enquiry to ascertain the officers/officials and take disciplinary action against those found involved in illegal/inadmissible import/exports.

  • FTO orders recovery from IR officers in unlawful bank account attachment

    FTO orders recovery from IR officers in unlawful bank account attachment

    ISLAMABAD: Federal Tax Ombudsman (FTO) has ordered recovery from officers of Inland Revenue Officers in a case of unlawful recovery through bank attachment of a taxpayer.

    The FTO ordered dated May 21, 2019 in a complaint filed by a taxpayer against unlawful recovery of tax demand from the bank account of the complainant outstanding against a private limited company, and undue delay in refunding the same.

    The complainant also sought for award of cost and compensation along with additional payment for delayed refund.

    The complainant as an individual assessed to tax at Regional Tax Office (RTO) – III Karachi. According to the taxpayer, the Inland Audit Officer Unit 2 Haripur, RTO Abbotabad, without considering the fact that the complainant was assessed to tax at, RTO-III Karachi against whom no tax demand was outstanding and without serving on him any prior notice, illegally attached his bank accounts and recovered Rs1.714 million.

    The findings of the FTO in this case showed that administrative excesses for improper motives, neglect, inattention, delay, incompetence, ineptitude and inefficiency in the discharge of duties and responsibility and as a consequence unlawful recovery of tax liability outstanding against a private limited concern from the bank account of the complainant tantamount to maladministration.

    The FTO directed the FBR to:

    i. recover Rs0.45 million from Muhammad Asghar Khan Niazi, Zonal CIR, RTO Abbottabad and Hafiz Muhammad Rafaqat, IAO, Unit RTO Abbottabad (costs and compensation) in equal shares and arrange to pay the same to the complainant;

    ii. fix responsibility regarding administrative excesses neglect, inattention, delay, incompetence, ineptitude and inefficiency in the administration or discharge of duties and responsibility and initiate appropriate disciplinary proceedings against the officials found accountable;

    iii. direct the commission – IR concerned to issue additional payment for delayed refund to the complainant.

  • 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.

  • FTO recommends 20 percent increase in withholding tax rates

    FTO recommends 20 percent increase in withholding tax rates

    KARACHI: Federal Tax Ombudsman (FTO) has recommended 20 percent increase in adjustable withholding taxes in order to encourage income tax return filing.

    However, this deduction of withholding tax should not apply on salary income, the FTO said in its recommendation for federal budget 2019/2020.

    In order to encourage taxpayers to e-file income tax returns for claiming adjustment of adjustable withholding taxes, it was proposed that gradually all adjustable withholding taxes, excluding those on salary income, might be enhanced by at least 20 percent in the coming budget.

    The FTO also proposed that all current non-adjustable withholding taxes may be converted into adjustable withholding taxes by amending the relevant provisions of the income tax laws/rules.

    Further, in order to provide rights to taxpayers, the FTO said that a taxpayer should be given the right to approach the commissioner for the revision of assessment, as was available under original Section 138 of the Income Tax Ordinance, 2001.

    The FTO further suggested that income from pension was exempted from income tax, but pensioners were not eligible to avail benefits of provisions of withholding tax unless they were on active taxpayers list. It was therefore proposed that pensioners deriving income from pension only, be exempted from the provisions of withholding taxes applicable to non-filers.

  • FTO takes suo moto notice in concealing income in garb of agriculture tax, Iranian oil sale

    FTO takes suo moto notice in concealing income in garb of agriculture tax, Iranian oil sale

    ISLAMABAD: Federal Tax Ombudsman (FTO) has taken suo moto notice and initiated investigation in open sale of Iranian oil in Balochistan and tax evasion in the garb of agriculture tax.

    The annual report 2018 issued by the office of FTO, stated that during the year the FTO proactively invoked powers to take action on own motion notices.

    It said that own motion investigation was initiated in the phenomenon of open sale of Iranian petroleum products in Balochistan at the petrol pumps. Proceedings were in progress, it added.

    Another own motion investigation was started in the phenomenon of tax evasion in the garb of agriculture tax. Since long, a large number of taxpayers have been showing a substantial portion of their income as agriculture income.

    “As tax on agriculture income was a provincial subject, so they were paying income tax to Federal Board of Revenue, on the income declared other than agriculture sources.”

    “While, at the same time they were not paying agriculture tax to the provinces,” the FTO report said, adding that on pointation by the FTO, the FBR had started sending notices to the defaulters.

    The FTO in another own motion investigation of a case of smuggling of mobile phones, mis-declared as LED lights, and cleared through green channel of WeBOC system, was undertaken as a suo-moto case and suitable recommendations were made.

  • Alvi praises FTO role in resolving taxpayers’ complaints

    Alvi praises FTO role in resolving taxpayers’ complaints

    ISLAMABAD: President of Pakistan Dr. Arif Alvi has praised the role of Federal Tax Ombudsman (FTO) for resolution of aggrieved taxpayers’ complaints.

    The president said this while talking to Federal Tax Ombudsman, Mushtaq Ahmad Sukhera, who called on him at Aiwan-i-Sadr on Monday.

    FTO also presented the annual report (2018) to the President.

    The President expressed his satisfaction on the decreasing number of representations against the recommendations of FTO.

    He appreciated the launching of e-based Complaint Management Information System(CMIS), which provides paperless office environment.

    He lauded FTO’s efforts for starting focused SMS and email campaigns to reach out to taxpayers.

    Moreover, he commended FTO for the development of a system for registration of complaints through android based hand-held devices.

    He highlighted that video link of FTO with Regional Offices is a step in right direction to eliminate time and space barriers.

    He stated that integration of FTO’s CMIS with FBR will improve its efficiency.

    He emphasized that there is a need for further steps for creation of awareness about the efficacy of the forum.

    He assured his support to the institution in the discharge of its duties and function.