Pakistan’s national exchequer has incurred a revenue loss, estimated to be as high as Rs6 trillion, owing to fraudulent activities involving fake or ‘flying’ invoices.
According to informed sources, this massive financial impact results from fraudsters filing false sales tax returns for dummy firms and illegally claiming input tax adjustments or refunds against these bogus invoices.
The sources noted that the incidence of sales tax fraud has escalated following the introduction of measures intended to facilitate, automate, and simplify the process of obtaining sales tax registrations. These well-intentioned initiatives, aimed at easing the tax filing process, have inadvertently provided fraudsters with new opportunities to exploit the system.
Methods of Evasion and FBR’s Response
The sources detailed that ‘flying invoices’ are utilized differently to evade sales tax. In some cases, the input tax is registered, but the corresponding output is not declared, while in other scenarios, the output is registered without the associated input tax. Both approaches lead to substantial sales tax evasion, causing losses to the national exchequer.
Data from the Federal Board of Revenue (FBR) reveals that out of 397,000 registered sales tax persons, approximately 30% have obtained their registrations to fraudulently obtain sales tax refunds and engage in the business of fake and flying invoices. This data encompasses a range of taxpayers, including dormant, active, and inactive entities, who remain registered with the sales tax department.
In summary, Pakistan is facing a severe challenge in revenue loss due to sales tax fraud, driven by fake invoices and the manipulation of the tax registration process. The Federal Board of Revenue’s data indicates the magnitude of the problem, underscoring the need for stringent measures to combat this issue and safeguard the national exchequer.
