The Directorate General of Intelligence & Investigation-Inland Revenue has arrested four Chief Financial Officers (CFOs) from Faisalabad-based textile units and a CFO from a Lahore-based battery manufacturer on charges of abetment/connivance in sales tax fraud.
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The Large Taxpayer Offices (LTOs) have convened meetings with many CFOs, warning them about potential arrests if evidence of tax fraud or illegal tax credits/adjustments is found.
The Regional Directorates of Intelligence & Investigations Inland Revenue have arrested five accused across the country, including a prominent fraudster who created chains of dummy businesses. Among the arrested are four CFOs responsible for a sales tax fraud that has caused billions in losses to the national exchequer.
In Hyderabad, the Directorate of Intelligence & Investigation-Inland Revenue arrested the CFO and Purchase Officer of a leading Lahore-based battery manufacturer for abetment/connivance in sales tax fraud involving fake input tax claims on lead. This operation, assisted by the Directorate Lahore, resulted in a revenue loss of over a billion rupees.
Separately, the Directorate of Intelligence & Investigation-Inland Revenue in Faisalabad arrested the CFOs of two sister concerns and a leading textile unit for claiming fake input tax on coal, causing hundreds of millions in losses to the national exchequer.
An FIR had already been registered against the suppliers, beneficiaries, connivers, and others involved.
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In another development, Taswar Shahid, accused in several FIRs, was arrested after his pre-arrest bail was rejected by the court. Shahid is a leading member of a gang operating fake and dummy units to generate fake sales tax input used by end users, causing billions in losses to the national treasury.
These arrests are part of a nationwide crackdown against organized crime and beneficiaries involved in sales tax fraud, aligning with the Federal Board of Revenue’s (FBR) enforcement measures to enhance tax compliance.
This is the first time CFOs of major textile companies have been arrested. The FBR has urged CFOs to pay the due amount of unpaid taxes, including the principal amount and additional tax/penalties, to avoid prosecution.
Criminal proceedings have been initiated against CFOs involved in approving fraudulent sales tax returns.
The FBR has identified and gathered evidence of tax fraud across various sectors, including 11 cases in the battery sector, 897 cases in the iron and steel sector, and 253 beneficiaries of fake input claims on coal purchases. Numerous cases are being prepared for criminal proceedings.
Manipulations in the supply chain have led to fraudulent input tax adjustments, debit and credit notes, and other tactics to defraud the return filing system. The total amount of sales tax fraud committed is Rs. 227 billion.
A massive enforcement crackdown is planned for the coming weeks. The finance minister emphasized that sales tax fraud is a criminal offense with severe penalties, including arrest and imprisonment of up to 10 years, in addition to heavy fines.
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Due to widespread tax evasion, enforcement measures, including arrests and criminal case registrations, were intensified last financial year, significantly reducing fake input tax claims across all sectors in FY24. However, massive evasion persists, necessitating more stringent enforcement measures.
Out of Rs. 3,400 billion in identified sales tax evasion, the FBR found that only 14% of 300,000 manufacturers are registered. Many registered entities misreport turnover, claim excess input tax, and use fake invoices.
