Bogus firm dodges Rs14bn in taxes through fake transactions

**ISLAMABAD:** A massive tax fraud involving data manipulation and breaches of taxpayer security has resulted in fake transactions worth Rs84 billion, leading to tax evasion of Rs14 billion in just a few months.  

According to official records and interviews, the Federal Tax Ombudsman (FTO) launched an investigation based on a complaint from a retired army officer, uncovering organized tax fraud with the alleged involvement of Federal Board of Revenue (FBR) IT staff.  

The probe revealed that a company under Zone-III, RTO-II Karachi, filed sales tax returns from September 2023 to January 2024, showing bogus supplies amounting to Rs81.434 billion, with a corresponding GST value of Rs14.658 billion. Buyers subsequently claimed massive input tax credits based on these fake supplies during the same periods. The company’s Sales Tax Registration Number (STRN) was blacklisted without an inquiry into the fraudulent misuse of the complainant’s ID.

When officials from the FBR and Pakistan Revenue Authority Limited (PRAL) were summoned, they failed to provide the required Annexure C (domestic sales invoices) records. PRAL admitted that Annexure C was unavailable, exposing significant gaps in the IT infrastructure.  

Further investigations uncovered suspicious forward and backward transactions, benefiting end consumers and manufacturers across multiple Inland Revenue offices, including RTO-I Karachi, RTO-II Karachi, LTO Lahore, CTO Lahore, and RTO Faisalabad.  

One of the most alarming findings involved the fraudulent introduction of Rs1.625 trillion in fake supplies by misusing the sales tax account of a 79-year-old woman living abroad, who had been filing nil returns. The cybercriminals exploited dormant taxpayer accounts, extracting passwords to carry out the bogus transactions.  

It was also discovered that the web portal’s safeguards against fraudulent transactions, governed by Rule 18(5) of the Sales Tax Rules 2006, had been deliberately disabled, contributing to the substantial revenue loss.  

"The investigation reveals that this fraud was carried out by a network of cybercriminals, facilitated by current and former employees of PRAL and the FBR with access to the computerized system," the report stated.  

The fraudsters targeted dormant taxpayers listed on the FBR website and used their credentials to generate fake transactions, ultimately benefiting various manufacturers and consumers.  

The complaint was filed against the Commissioner of Zone-III, RTO-II Karachi, under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000, accusing the complainant of participating in tax fraud. The commissioner blacklisted the complainant’s STRN in an ex-parte order on March 27, 2024, citing fraudulent transactions amounting to Rs81.434 billion for the September 2023 to January 2024 tax periods.  

The complainant argued that the blacklisting was done without proper service of notices or suspension orders. He claimed that notices were either delivered late or never received, calling for an investigation into the misuse of his ID and the cancellation of the blacklisting order.  

In response, the Revenue Division submitted an Excel sheet showing the transactions recorded under Annexure C. However, it failed to provide hard copies or further evidence, raising questions about procedural lapses.  

The FTO has directed the FBR to ensure that the chief commissioner of LTO Lahore initiates legal action against the individuals involved in the fraud and pursues the case for conviction in accordance with the law.