Islamabad: Federal Tax Ombudsman (FTO) has recommended Federal Board of Revenue (FBR) to recover Rs5.5 billion evaded revenue by way of misusing the Rule 3(A) of Rule 58H of Sales Tax Special Procedure Rule, 2007 introduced vide SRO No. 421(1)/2014 dated 04.06.2014.
According to details, FTO while concluding an inspection activity under Section 17 of FTO Ordinance, 2000 has recommended a feasible and conclusive way out to the FBR for affecting recoveries of evaded government revenue by way of misusing the Rule 3(A) of Rule 58H of Sales Tax Special Procedure Rule, 2007 introduced vide SRO No. 421(1)/2014 dated 04.06.2014.
Special Procedure Rules were introduced since 2007 in order to facilitate Steel Sector and collection of Sales Tax from steel melters/ re-rollers/ composite of melters and re- rollers having a single electricity meter was charged at specified rates under Rule 58H of Sales Tax Special Procedure Rule, 2007.
The above levied sales tax was collected through monthly electricity bills on the basis of consumption of electricity. However, subsequently, in the year 2014, sub Rule (3A) was inserted under Rule 58H of the above said Rules, with effect from 04.06.2014.
The purpose behind the above insertion of sub-Rule (3A) was primarily to bring in an ease and convenience in Sales Tax collection from this sector i.e. steel melters. As a corollary to above, the commissioners were empowered to collect Sales Tax directly from the steel melters and re-rollers after necessary adjustments in lieu of collection of sales tax at import stage and by issuing an adjustment/ exclusion certificate in this regard.
However, during the currency of the above facilitation scheme, the glaring discrepancies including outright violation of the concessionary regime (issuance of exclusion certificates to unregistered persons) and others were noticed first by DG External Audit, then by PAC and finally by FTO Secretariat.
According to FTO’s findings in the subject inspection, there is a huge gap between the number of exclusion certificates issued as per LESCO data and that of CTO, Lahore.
Furthermore, CTO Lahore did not have information regarding amounts deposited in treasury and corresponding CPR numbers, which are of crucial importance. Also, non production of records in respect of remaining exclusion certificates clearly depicts that the same fall in an extremely grey area where instances of maladministration, misuse of authority, ulterior motives are likely to prevail. According to FTO findings, based on examination of relevant records an amount of approximately Rs. 5.5 billion is suspected to be evaded in such cases at CTO Lahore.
FTO has further observed that FBR facing the huge revenue shortfall, through timely and directional action can easily recover the loss as it doesn’t involve any complex and intricate legalities.
The strategy to recover the lost revenue, recommended by FTO office is equally simple, FBR driven and hassle free: All Steel Units which availed Exclusion Certificate need to be confronted by FBR and amounts as per ECs must reconcile with the payment of Sales Tax at the relevant point of time and where ever there is a difference, it needs to be recovered.
Further, in order to ensure fast recovery of this apparent loss of Rs.5.5 billion, FTO has recommended FBR to Re-locate the jurisdiction of Steel Cases from CTO Lahore to LTO Lahore or RTO Lahore for a more independent and effective recovery proceedings.
Similarly, any officers/officials having any link in the past with the cases of Steel melters must not be associated or assigned the fresh jurisdiction of said cases.
FTO has also recommended FBR to recover the loss incurred on priority basis through its investigation arm: Directorate General I&I-IR. Internal investigation on all Pakistan bases, with special emphasis at Lahore, solely aiming at recovery of loss incurred is required probing all cases of exclusion certificates.
