FBR unearths tax avoidance by pharma firms

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KARACHI: The Federal Board of Revenue (FBR) has unearthed huge outflows of foreign exchange through transfer pricing by multinational companies dodging the authorities to avoid taxes. A team of senior tax officials and members of a chartered accountancy firm prepared a report on transfer pricing in Pakistan and submitted it to the FBR for further action, an official in the revenue board said on Wednesday.

The official said that incidences of tax evasion and avoidance through transfer pricing were very high, but due to lack of documentation of the economy, such cases were not detected.

“An amount of Rs370 million has been recovered from pharmaceutical companies under the specific issues of transfer of pricing,” the official added.

A copy of the report made available to The News recommended the formation of an audit team, comprising of officers of Inland Revenue Services, officers of Directorate General Customs Post Clearance Audit and officers of Directorate General Customs Valuation, for detecting cases of transfer pricing.

The report mentioned import data of active pharmaceutical ingredients, suggesting that certain MNCs and local firms were involved in importing raw material at very high prices.

“The most important adverse impact is in the form of the transfer of hard-earned foreign exchange outside the country. This does not always affect the revenue,” it added.

The report further noted that transfer pricing without an adverse impact on revenue is usually done in goods, which either enjoy exemption or concessionary rates of customs duty, sales tax, and income tax.

The report identified that few incentives were available for transfer pricing in finished goods or commercial categories because of the nature of imports, which was under presumptive regimes.

It recommended that the import of raw materials by MNCs and local firms through their agents in other countries were the source of transfer pricing and leakages of revenue.

The report mentioned that the Large Taxpayers Unit (LTU) Karachi had identified at least two major multinational pharmaceutical companies and had subsequently initiated recoveries from them.

It is pertinent to mention that the anti-avoidance cell to detect transfer pricing between related parties was established at the LTU Karachi this year. The LTU Karachi has launched scrutiny of several cases of different sectors of the economy and is expecting Rs30 billion recoveries under anti-avoidance drive.


Courtesy: The News

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