The Federal Board of Revenue (FBR) has claimed that it has busted the first biggest tax fraud of billions of rupees by tampering with its electronically integrated Point of Sales (POS) system amid the company owner’s allegations of harassment of family members by the taxmen.
Owners of Metro Shoes – the retail chain of women shoes’ brand – on Friday brought their tax dispute before the Senate Standing Committee on Finance and pleaded for the support of legislators.
The standing committee met for the third consecutive day under the chairmanship of Senator Muhammad Talha Mahmood amid continued absence of Finance Minister Shaukat Tarin.
Leader of the House in the Senate Senator Shahzad Waseem had referred the matter of registration of the case against Metro Shoes.
Initial details revealed during the committee proceedings and disclosed by the taxmen to The Express Tribune suggest that Metro Shoes could be a test case of the government’s ability to go after the wealthy and at the same time the trustworthiness of its POS system.
“On December 9, the FBR raided our business premises and confiscated computers and the record on allegations that we have manipulated the Point of Sales system,” brand owner Nadeem Younus told the committee. “The FBR did not give the company any notice of recovery but now it is demanding Rs500 million and that too without any formal tax demand.”
He said that the tax demand was equal to 72% of the inventory of the company. “After a lapse of one month, neither our computers have been returned nor have we been given the tax demand notice,” said Younus.
“It is a tax fraud case and the FBR will return the system only when the investigation is complete,” said FBR Chairman Dr Mohammad Ashfaq.
Metro Shoes has 45 branches across the country, said Jehanzeb Nadeem, co-owner of the retail chain. In five years, the company has paid Rs477 million in taxes, he added.
While narrating the incident, Younus said that FBR’s people in uniform, similar to the military, raided his residence and harassed the employees.
“They demanded phone numbers of our relatives and inquired about the fiancée of my son,” he claimed.
“Yesterday, I had cracked a joke that the FBR people should start picking children of businessmen but I did not know the FBR was actually doing this,” said Senator Musadiq Malik of the Pakistan Muslim League-Nawaz (PML-N).
He questioned how in a civil tax matter, the FBR could enter the private premises.
“The taxmen also inquired about my granddaughter and I wonder what she has to do with my company’s affairs,” questioned Younus.
The FBR chairman did not reply under which law the authority could forcefully enter people’s homes for tax matters.
“Despite the legal requirement, the businesses are not integrating with the POS system and there is pressure on us from the government to take action,” said FBR Chairman Dr Mohammad Ashfaq.
Businesses that have integrated with the FBR have now found loopholes to avoid the system, he added.
A senior FBR official, who was involved in the case, told The Express Tribune that Metro Shoes’ owners were tampering with QR codes of sales receipts by reprinting the old codes.
He claimed that the company was under-declaring its sales by 80% and the FBR got proof of the fraud in the shape of electronic mails exchanged between the owners and the employees.
During the Covid-19 period, the company owners issued instructions to file nil tax returns, when they were actually making sales, said the FBR official.
The quantum of tax evasion was being computed but initial estimates suggested that it was around Rs1 billion, excluding the income tax evasion on under-declared sales, said the FBR official.
He said that the FBR followed the legal process before starting the search at home and took search warrants from a court judge.
The standing committee asked both the parties to settle the matter amicably and report back to the committee on Monday.
While continuing discussion on the Rs375 billion mini-budget, the standing committee backed the government’s proposal to impose 17% tax on the raw material of medicines and also agreed to the principle of bringing medicines under the tax net.
But it recommended that the FBR should take bank guarantees or insurance guarantees against the tax paid at the import stage to avoid the blocking of refunds.
“Although the committee has supported the withdrawal of tax exemptions on medicines, my fear is that prices of medicines will go up,” said Senator Faisal Saleem Rehman of the Pakistan Tehreek-e-Insaf.
The standing committee supported the government’s proposal to impose 17% tax on high-efficiency irrigation equipment, green house farming equipment, operational tools for setting up green airports and import of plant and machinery for the manufacturing of mobile phones. The committee also supported the tax on premixes of growth stunting.
The committee supported 5% tax on imported computers and laptops with a majority vote, as Senator Faisal Rehman and MQM’s Senator Faisal Sabzwari opposed the tax on computers.
The standing committee backed taxes on sunflower and canola hybrid seeds, combined harvesters, fish feed, fans for dairy farms, bovine semen and preparation for animal feed.
“Work on the remaining agricultural exemptions is in progress and I informed the finance minister on Friday that we also have to withdraw those exemptions,” the FBR chairman informed the committee.
The standing committee objected to the imposition of 17% sales tax on sewing machines used in households.
The FBR chairman said that sewing machine was declared as imported machinery to which the committee member said that the FBR should catch its own people for this mis-declaration than slapping taxes on housewives.
The committee rejected 17% tax on solar panels, citing it was against the vision of Prime Minister Imran Khan. The committee rejected the tax on government donations. “The FBR should also impose 17% tax on IMF loans,” said Senator Farooq Naek sarcastically.