TIP rejects FBR’s clarification on production monitoring; advises to stop Rs 600 billion tax evasion

KARACHI: Transparency International Pakistan (TIP) has rejected the FBR’s clarification on monitoring of production and said that the revenue authorities should take corrective steps to stop Rs 600 billion tax evasion.
The acting chairman of FBR sent report to the TIP, in which it clarified that Public Procurement Rule 2004 are not being violated, is irrelevant and out of context. However, TIP did not object on such issue of PPRA violation in its recent report.
The report of TIP said that the project of cigarettes tax stamp had announced by the FBR in 2012 and in fact the project did not come in process till now and said that the surprise change in FBR policy in the procedure of tax collection of tax revenue of the Cigarettes Tax Stamp with having zero investment from the government.
TI Pakistan said that scheme was sabotage by FBR officials and cigarettes manufacturers to evade taxes of billion of rupees which is continued for the last two years.
The TIP objection on FBR scheme is only an experimental idea through which FBR is willing to spend government funds of billion of rupees as fee to the successful bidder, and the scheme is deemed to be failed.
“TIP feels that FBR and manufacturers are in collusion to push this scheme, so that it fails to check tax evasion of over Rs 600 billion in these five products to continue.”
TIP said, “The five cellular companies are causing tax evasion of more than Rs 500 billion as TIP informed that the FBR had sabotage the scheme submitted collection of 39.5 percent (15 percent withholding and 19.5 percent GST) from mentioned cellular phone companies.”
“The production units electronic registers will be installed and linked to FBR headquarters for 24 hours monitoring. It is mentioned the system will sabotage by manufacturers by using cyber techniques of bypassing FBR links which not only causes loss of billion of rupees paid to the consultant, but will cause continuation of tax evasion as before,” TIP report said.
The FBR said in its clarification report that the complainant seems self contradictory because first it states that no such monitoring system exists and then suggests that FBR should have a larger system (that includes post-production tracking too).
The FBR said that it appears, the complainant has not examined the bid documents in detail, and may have jumped to conclusions.
The Body said to the TIP that the monitoring of cigarettes industry is not abandoned, but continues to form part of present process. Bit document clearly list the five sectors including beverage, aerated waters, cement, cigarettes, fertilizers and sugar.
“Bid documents explain this as a two (2) stages process, where only first stage technical bids are called initially, once those are examined, FBR will convey any change in technical requirements to qualifying bidders.”
The above mentioned method ensures that the optimum monitoring solutions are used as technical/functional specifications as this method is not in violation of PPRA Rule, 2004 and is superior using a solution proposed by complainant (as that could favor specific solutions –providers) and further said that TI will agree in this.
The FBR wrote its examined points to the Supreme Court that TIP proposed that payment through pre-paid shall be the only mode (even if dealers get such cards from companies, it should be the responsibility of the service provider to collect and deposit tax.
However, FBR commented over TIP’s proposal that freedom of trade and business is one of the fundamental rights guaranteed under the Constitution of Pakistan. To resist the business of cellular companies to pre-paid card only is against the settled principle that the revenue cannot dictate how to run a business unless any business practice is against the law and manifests loss of revenues.
TI Pakistan has proposed another idea that Pakistan Security Printing Corporation Pvt Limited will print the pre-paid cards, with “10 percent and 19.5 percent GST paid” on each card. However, the FBR said, “The proposal that services providers at the time of obtaining printed cards from the printer (PSPC) should deposit the total amount of sales tax and income tax in FBR’s account at NBP is against the Sales Tax Act, 1990.”
The TIP further suggested that cellular phone companies and internet provider companies will deposit the total amount of GST and WHT in FBR account at the NBP, and provide the paid voucher, certified by the FBR through PRAL system, to PSPC and collect the pre-paid cards.
Another idea of TIP is, as GST on services is a provincial tax, cards will be printed separately with the name of the province/federal territory for sale in Punjab, Sindh, KPK, Balochistan and federal territory. It will enable transferring GST to the respective provinces collected by FBR.
TI Pakistan said, if the above mentioned suggestions to be implemented then it would generate additional revenue of at least Rs 226 billion however, FBR commented that no working has been provided by the TIP as to how revenue would be generated to that amount.

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