Importers in Pakistan involved in Tax Evasion to conceal their Finances

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KARACHI: The Federal Board of Revenue (FBR) has found tax evasion as a big crime, in which importers are involved. The common practice by importers is that they are concealing their financial transactions for tax evasion, a tax official said on Monday.

FBR conducted a joint exercise to check the payment channels for imports and following sales to local buyers. The tax offices also included intelligence and investigation of Inland Revenue in their joint exercise. The anti-money laundering laws act as a global watchdog and comply with Financial Action Task Force to monitor money laundering and terrorist financing activity.

Importer involved in Tax Evasion

The results of tax evasion that came with this exercise were shocking reveals. An importer involved in tax evasion had turnover of Rs14 billion in three years (2017 to 2019). But the importer declared Rs6 billion in annual tax returns and wealth statements. The importer was having 16 bank accounts, only 10 bank accounts were declared to the tax authorities.

That importer shifted around Rs8 billion in his hidden six bank accounts. He failed to explain the source of income deposited in those undeclared bank accounts. The official discovered that he used the undeclared funds for import payment to the foreign seller. The tax authorities identify the amount used for import payment through proper channel. A letter of credit and funds is received at the customs clearance to declare assets to tax authorities.

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The official said initially the tax authorities disclosed Rs10 million of tax evasion besides other money laundering cases. They got to know from further investigations that other importers also adopted similar practice. Sources said, the FBR took strict actions against importers allegedly involved in money laundering.

Final Tax Regime

The sources in Regional Tax Office (RTO) Karachi informed that the commercial importers were following the final tax regime for several years. They were enjoying escape from audit. However, the government modified the tax laws last year and the commercial importers will also follow minimum tax regime.

A minimum tax regime implemented to commercial importers through Finance Act, 2018. But, the strong lobby withdrew the amendment through Supplementary (Second Amendment) Act, 2019. The minimum tax reintroduced for commercial importers next year to impose tax collection at the import stage. This exercise was to promote documentation of the country’s economy and abolish final tax regime.

Later, when the government reintroduced the final tax regime faced serious backlash from other stakeholders. The final tax regime has been a problem since its birth in 1992 because it eroded the tax base and documentation of economy. The sources in AF Ferguson Chartered Accountancy Firm revealed this tax evasion practice in Pakistan.

Noshaba Kanwal
the authorNoshaba Kanwal
Noshaba Kanwal is a Web editor, having more than 6 years of professional experience in Web content writing.

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