Identifying Fake and Flying Invoices: A Critical Task

The first line of defense against fraudulent tax activities involves identifying fake or flying invoices. Each Chief Commissioner of Inland Revenue is mandated to assign at least two senior officers with impeccable integrity to this task within their respective jurisdictions. This function is primarily entrusted to the Assessment & Processing Cell, where available. These officers are granted full access to sales tax and FED data through IRIS, ITMS, CREST, FASTER, and other automated systems. This access enables them to perform effective data analysis and scrutinize the entire supply chain by examining the sales tax returns and registrations of registered individuals or entities.

Characteristics of Fake/Flying Invoices

When identifying potential cases of fake or flying invoices, officers focus on several key characteristics. These include high transaction volumes with minimal net sales tax payments, matching values of purchases and input tax with supplies and output tax, consistent carry forwards with unrealistic stock levels, and meager capital declarations compared to substantial stock holdings. Frequent and significant use of credit notes to avoid tax payments, recent registrations with substantial transactions, and addresses in low-income or remote areas also raise red flags.

Uncovering Networks and Supply Chains

Fraudulent tax activities involving fake and flying invoices often operate within networks. Once an issuer of such invoices is identified, scrutinizing both forward and backward transactions in Annex A and Annex C of their sales tax returns becomes crucial. This process helps uncover other wrongdoers within the supply chain and allows for a comprehensive response.

Suspension and Blacklisting: Swift Action Required

Upon identifying dubious or fake registrations or the use of fake/flying invoices, the concerned Commissioner of Inland Revenue must promptly suspend the registration according to Section 21 of the Sales Tax Act of 1990, in conjunction with Rule 12(a) of the Sales Tax Rules of 2006. Following suspension, statutory action for blacklisting must be initiated within seven days as stipulated in Rule 12(a)(vi) of the Sales Tax Rules of 2006.

Action Against Beneficiaries: Going Beyond the Surface

Suspending and blacklisting fake firms is not sufficient to eliminate the problem. Fraudsters often create new registrations to continue their illegal activities. Therefore, officers must pursue beneficiaries, who are real and existing firms, to reach the actual culprits. Immediate action, under relevant assessment, enforcement, and penal provisions, should be taken against beneficiaries for the recovery of evaded sales tax or false refunds.

Registration of FIRs: Strengthening Legal Measures

To deter misuse of trust within the self-assessment system, officers, upon establishing cases of tax fraud involving fake or flying invoices, must not hesitate to register FIRs against the perpetrators under the relevant legal provisions. Tracing IP addresses and coordinates of the criminals through automated systems is vital for effective enforcement.

Action Against e-Intermediaries: Shared Responsibility

Section 52A of the Sales Tax Act of 1990 holds e-intermediaries jointly and severally liable for the consequences if they knowingly or willfully submit false information to avoid tax payment. Therefore, officers must also proceed against e-intermediaries under Section 37A of the Act and initiate proceedings for the suspension and subsequent cancellation of their licenses.

Action Against Insiders: Vigilance Within the System

It is implausible that numerous firms openly issue false sales tax invoices without some form of insider assistance. Chief Commissioners and Commissioners of Inland Revenue must maintain constant vigilance over their staff to detect any complicity in fraudulent activities. Action based on evidence of complicity should be swift, with legal consequences imposed on departmental officials involved or in connivance with those using fake or flying invoices.

Collaboration Across Jurisdictions: Sharing the Burden

Cases involving buyers or suppliers of fake/bogus firms that fall within other jurisdictions require collaboration. Chief Commissioners should promptly share case details with the relevant jurisdictions, highlighting that registered persons within their jurisdiction are involved in transactions related to fake or flying invoices.

Reporting to the Board: Continuous Improvement

In addition to detecting fraudulent activities, field formations are responsible for sharing reports with the Board. These reports aid in analyzing how to enhance existing automated systems and statutory procedures to eliminate tax fraud involving fake and flying invoices, thus safeguarding government revenues.

In conclusion, Pakistan’s Federal Board of Revenue is taking significant steps to combat tax fraud associated with fake and flying invoices. Through comprehensive SOPs and adherence to the Sales Tax Act of 1990, the government aims to protect its revenue and ensure a fair and transparent taxation system.