FBR nabs fraudsters involved in registration of dummy business companies

The Federal Board of Revenue’ Intelligence & Investigation Inland Revenue (IR) directorate has nabbed a gang of fraudsters involved in the registration of dummy business companies to conduct fictitious transactions within the supply chain of fake and flying sales tax invoices to evade sales tax worth billions of rupees.

During investigation under section 38 of the Sales Tax Act, 1990, as per Annexure-a for the tax period November 2022, a dummy registered unit claimed input tax of Rs. 8.5 billion on account of the purchase of horses, asses, mules, and hinnies live (HS Code: 0101) at a purchase value of Rs. 50 billion against an invoice issued by another dummy unit, which filed only Annexurec of the sales tax return but did not file a sales tax return for the said tax period.

This is done through hoodwinking the STRIVE software of the Federal Board of Revenue. As per STRIVE, the taxpayer can claim input tax in Annex-a of the Sales Tax Return against an invoice if the said invoice and tax are duly declared by the supplier in annexure C which is actually filed prior to the filing of the Sales Tax

Return as the due date for filing of Annexure-c is 10th of the month succeeding the tax period to which it pertains whereas due date for filing of sales tax return is 18th of the month succeeding the tax period to which it pertains.

This act of tax fraud has resulted in the introduction of a fake sales tax input of Rs. 8.5 billion in the system without ever being actually paid which has been subsequently transferred to various dummy and genuine registered businesses operating mainly in the ghee and packaging material manufacturing sector who have adjusted such fake input tax against output tax to defraud national exchequer by reducing sales tax liability.