FBR detects 40 fake firms

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ISLAMABAD: The Federal Board of Revenue (FBR) has identified 40 fictitious companies which got millions in illegal sales tax refund and input adjustment in connivance with officials, according to sources.

The companies were registered by the tax staff without physical verification of the addresses they provided, mostly in areas of Karachi like Lyari and North Nazimabad, the sources said. On an average each company got Rs30 million in fraudulent claims, official estimates revealed. The firms either issued fake invoices or flying invoices for the purpose.

Many companies which do no business issue fake invoices. They then claim refunds for raw material from sales tax department, without having paid a single penny on the material.

Other companies use flying invoices to claim inflated refunds, by showing excessive use of raw material.

Registration of fake companies is turning out to be the easiest way of making quick money in the major cities of the country, especially Karachi. But the FBR’s favoured response has been limited to blacklisting them or suspending their registration.

Official documents obtained by Dawn have revealed that a bogus ‘physical verification report’ is placed in the file of each fictitious firm, just as it was done in the case of one Rehmat Textile, which falls under the jurisdiction of the Regional Tax Office-1, Karachi.

However, an FBR letter revealed that Rehmat Textile was not a genuine business concern, because it was registered on a fake address and was involved in claiming refunds on fake invoices, thereby causing loss to the national exchequer.

On April 22 last year the sales tax registration of Rehmat Textile was suspended. But neither was an action taken nor an inquiry carried out to recover the money obtained by the company in bogus refund claims. What’s more, no action was taken against the officers responsible for registering the company on a fictitious address.

In March last year, the RTO-II, Karachi, recommended to the FBR that registration of 26 such ‘companies’ be suspended.

According to sources, the Directorate of Intelligence and Investigation, Karachi, also detected several bogus firms registered on fake addresses, such as M/s Meshsol. (No action was taken against this company other than suspension of its registration.)

FBR Spokesman and Member for Inland Revenue Shahid Hussain Asad confirmed that physical verification of a firm was mandatory for registration. But he conceded that certain rules and regulations were not being implemented properly.

Against the backdrop of millions, even billions, which were paid to fictitious companies, a businessman told Dawn that refund claims filed by genuine companies had been withheld for the past many months.

The patron-in-chief of the Pakistan Bedwear Exporters Association, Shabbir Ahmad, said the claims by genuine firms ran into billions.

Mr Ahmad said he and other members of his association wanted to meet Finance Minister Ishaq Dar. “But I wonder whether Mr Dar has time for the genuine exporters of the country,” he added.


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