FTO takes suo motu in tax evasion case

The Federal Tax Ombudsman (FTO) has taken suo motu in a case involving multimillion dollar tax evasion by resident companies, concerns and international contractors.

However, this evasion was not pursued by the tax authorities, which resulted in huge revenue loss to the national exchequer.

The FTO in its own motion observed that some of the most meaningful and innovative initiatives of the Federal Board of Revenue’s (FBR) own officers and tax offices stand diluted and washed away due to the follow up failure, frequent postings and transfers of officers and massive changes in the jurisdictions.

According to the FTO office, a list of potential cases of tax evasion, including the present case, along with a detailed investigation report and a case study was prepared and shared by the Directorate General, Broadening the Tax Base (BTB), FBR.

“This valuable information was duly shared in December 2018, with the field formations concerned for taking action against the said entities for not declaring true particulars of their receipts and income and not discharging their responsibilities as withholding agents.”

“However, in 2019, the FBR’s management suddenly shelved this whole BTB regime overnight; disbanding BTB Zones Islamabad, Lahore and Karachi. The office of the director general BTB was relegated to a ceremonial entity assigned as additional charge.”

Thus, in addition to losing an effective organisation, the repository of the whole above data and information was suddenly rendered extinct, the FTO observed.

Based on the reports generated by the BTB director general, the companies were not declaring the true particulars of income and were not discharging their responsibilities as the withholding agents, especially in respect of Section 149, 152 and 153 of the Income Tax Ordinance, 2001.

To make out foolproof cases, the total receipts of the companies were obtained by the BTB director general from the data hosed by the International Aid Transparency Initiative, which was compared with the declared receipts in the tax returns.

Huge discrepancies were observed casting doubt over the tax evasion by the companies. However, after the disbanding of the BTB director general office, progress on the case was not known.

“It seems that the valuable information shared with the field formations was lost due to inattention, incompetence and ineptitude of the officers holding jurisdiction of the case,” the FTO observed.

On the basis of available information, the FTO asked the FBR and its offices to file responses. Instead of filing the response, the tax authorities raised objection to the jurisdiction of the FTO to investigate into the case of suspected maladministration.

“Instead of safeguarding the interest of revenue by plugging loopholes in the tax declaration of instant cases, the chief commissioner Inland Revenue (CCIR) Corporate Tax Office (CTO) Lahore chose to contest the suo motu investigation on technical grounds.”

Interestingly, of the 34 such cases in which notices were issued by the FTO, compliance has been made by the CTO and Regional Tax Office (RTO), Islamabad in 27 cases and raised Rs600 million demand in six cases at CTO and RTO Islamabad.

“Besides, the CTO Lahore is adamant to protect the inattention, ineptitude and inefficiency of his officers. Non-provision of information by the CIR CTO Lahore is; therefore, blatantly against the interest of the public exchequer and the core function of the FBR,” the FTO observed.

The FTO asked the revenue board to direct director general internal audit, IR, to conduct inspection in the case to ensure that the action is initiated and concluded as per the information provided by the FTO during the investigation.

Further, the chief commissioner CTO Lahore should be directed to identify the officers who are responsible for unwarranted delay and resultant revenue loss.