The Auditor General of Pakistan (AGP) has uncovered one of the largest sales tax scams in the country’s history, revealing inadmissible input tax adjustments worth Rs. 123.59 billion involving fake and flying invoices across 19 field offices of the Federal Board of Revenue (FBR).
According to official audit findings, 375 registered persons fraudulently claimed tax credits using invoices issued by blacklisted or suspended suppliers in direct violation of Section 21 of the Sales Tax Act, 1990. The fraudulent activity occurred during fiscal years 2022–23 and 2023–24, and was reportedly missed or ignored by tax authorities, resulting in a massive revenue loss to the national exchequer.
The report highlights severe lapses in internal controls within FBR, which allowed the adjustments to go unchecked. Some Rs. 4.79 billion in suspected fraud cases remain unanswered, despite repeated follow-ups from the Auditor General’s office. In several cases, FBR was slow to initiate legal action or recover losses.
FBR’s response
In response to the AGP’s findings, the FBR has initiated inquiries worth Rs. 2.85 billion at RTO Multan; Rs. 31.35 billion worth of taxes are under legal proceedings; Rs. 82.1 billion are currently under adjudication; and Rs. 3.61 million are sub judice in court.
The audit team’s investigation, spanning nearly a year from February to November 2024, revealed a systemic failure in monitoring and enforcement. This was not the first time such irregularities had been flagged: similar issues were highlighted in audit reports for 2019–20, 2021–22, 2022–23, and 2023–24, with cumulative losses totaling Rs. 37.8 billion.
The recurrence of this malpractice points to entrenched weaknesses in oversight, compliance enforcement, and I.T. controls within the FBR system.
The AGP has recommended expedited recovery and legal action in tax cases; swift pursuit of pending court cases; and implementation of automated controls to disallow or defer input tax claims from blacklisted or suspicious registrants.
The audit’s revelations have renewed calls for institutional reform within FBR, as the tax authority continues to grapple with structural inefficiencies that undermine revenue collection and public trust.