Major embezzlement scam emerges in withholding tax regime
A scam worth billions has emerged in withholding tax regime as huge purchases of goods and services have been carried from ostensibly fictitious persons in a number of cases.
The director-general (DG) Internal Audit wrote a letter to the member of IR operations with regard to scams in withholding tax regime, extrapolating on its details.
The modus operandi (MO) seems to be that many taxpayers – in order to show reduced profits, pay less tax or claim illegal refunds – falsify purchase orders and invoices.
The letter states that It is similar to the method of fake flying invoices in case of sales tax, but the volume is much larger.
Furthermore, the letter states that the withholding agents have made dubious purchases of goods and services worth Rs4,193.687 billion in the last five years, on which withholding tax of Rs1,258 billion has been evaded.
The letter Insists that scrutiny of the data reveals many discrepancies which substantiate the view that these are fake persons and acquisitions being used to show huge purchases of goods and services and thereby reduce the withholding agents’ profit and tax liability.
In this situation, DG internal audit suggested that data may be shared with real-time operating systems (RTOs) and they be directed to conduct verification of the existence of the withholders, and to enforce their Income tax returns along with payment of minimum tax and sales tax, wherever applicable.
The DG internal audit also suggested that RTOs should confirm whether the tax shown as deducted/withheld from these withholders has been deposited in the treasury. If not, legal action under relevant provisions should be taken against them to recover the amount.
The IT Wing to put in checks in the system to prevent such frauds and malpractices, the DG also suggested.