Finance Minister Muhammad Aurangzeb on Thursday announced the government will soon crackdown on tax evaders, noting the Federal Board of Revenue (FBR) had found around Rs. 3.4 trillion in sales tax evasion out of Rs. 7 trillion tax theft in different sectors of the economy.
Addressing a press conference in Islamabad alongside FBR Chairman Rashid Mahmood Langrial, he said the FBR’s study on sales tax evasion found only 14% of 300,000 manufacturers liable to register for sales tax had done so. Among those who have registered, he said, many misreport their turnover, claim excess input tax, and use fake invoices. Noting that sales tax in Pakistan was collected from consumers through businesses in the form of value-added tax, he said this trust was breached, especially in five sectors of iron and steel, cement, beverages, batteries, and textile.
Regrettably, said the minister, the malpractice was widespread and most entities claimed excess input tax. In the iron and steel sector, he claimed, 33 large businesses representing over 50% of total sales had evaded sales tax by claiming Rs. 29 billion in excess input tax, mainly through scrap metal and coal purchases. Similarly, in the batteries sector, six active cases representing 99% of total sales had claimed Rs. 11 billion in excess input tax, primarily through lead purchases. Likewise, in the cement sector, 19 active cases claimed Rs. 18 billion in excess input tax in FY23-24, mainly through coal purchases.
Additionally, continued Aurangzeb, the beverages sector had 16 active cases representing 99% of aerated water sales, claiming Rs. 15 billion in excess input tax, mainly through sugar, plastics, and services purchases. In the textile sector, 228 active cases claimed Rs. 169 billion in excess input tax, mainly through services, chemicals, coal, and packaging purchases.
The finance minister said the government had decided to combat this tax evasion by intensifying enforcement measures, including arrests and criminal cases, resulting in a significant decrease in fake input tax claims in the last fiscal year. However, he said, massive evasion persists, and the government would introduce more measures to curb it.
According to Aurangzeb, the FBR has secured evidence of tax fraud in various sectors, including 11 battery sector cases, 897 iron and steel sector cases, and 253 beneficiaries of fake input claims on coal purchases. He said these offenders faced arrest and imprisonment of up to 10 years, heavy penalties, and fines.
Emphasizing that input tax adjustment fraud was a serious issue, the minister warned chief financial officers to refrain from signing incorrect returns, especially before the Oct. 15 deadline, warning they would personally be culpable in this situations.
“Pakistan cannot achieve sustainable growth with a tax-to-GDP ratio of 9-10%,” he said, asserting this ratio must be raised to 13%. He also reiterated warnings of significant penalties for non-filers. The FBR chairman added there would be no category of non-filers from Oct. 14, the last date to file income tax returns.