Finance Minister announces severe punishments for corporate tax evaders

ISLAMABAD: Pakistan’s Finance Minister, Muhammad Aurangzeb, revealed that large companies are responsible for approximately half of the country’s total tax evasions, amounting to Rs3.4 trillion.

The minister warned these companies’ chief financial officers (CFOs) not to sign incorrect returns, cautioning that severe punishments, including up to 10 years in jail and hefty fines, await those who do. Aurangzeb emphasized that Pakistan’s 9-10% tax-to-GDP ratio is unsustainable and should ideally be around 13%.

This disparity underscores the need for stringent measures to combat tax evasion. Non-filers will face significant difficulties in the coming weeks as the Federal Board of Revenue (FBR) gears up for a massive operation.

Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial termed input tax adjustment a fraud in Pakistan.

In addition, he warned CFOs to avoid signing incorrect returns, especially before the October 14 deadline. Langrial stressed that those involved in tax evasion will face consequences. Data analytics revealed that companies in sectors like iron and steel, cement, beverages, batteries, and textiles engage in malpractices.

These include misreporting turnover, claiming extra input tax, and using fake invoices. The FBR has already detected evidence of tax fraud in several sectors, including 11 cases in the battery sector and 897 cases in the iron and steel sector.

Additionally, The investigation uncovered Rs227 billion in sales tax fraud across these sectors. Specifically, 33 large iron and steel businesses evaded sales tax by claiming excess input tax of Rs29 billion.

Six active battery sector cases claimed excess input tax adjustment of Rs11 billion. The cement sector saw 19 active cases claim Rs18 billion, while 16 beverage sector cases claim Rs15 billion. Additionally, 228 textile sector cases claimed Rs169 billion.

To address these issues, the FBR plans to introduce sales tax in a VAT mode. Specialized training will enhance human resource strength and audit capacity.

Langrial assured that no one would be spared, including tax officers caught in tax evasion. The FBR’s automation company, Pakistan Revenue Automation Ltd, will undergo reform. These measures demonstrate the government’s commitment to tackling tax evasion and promoting compliance.