FTO accuses Millat of fraud during tax period 2017 to 2022

FTO slams FBR for incompetence and orders it to collect Rs 14.887 billion from Millat Tractors in alleged tax fraud

ISLAMABAD: The Federal Tax Ombudsman (FTO), per their latest ruling in their investigation against Millat Tractors, has directed the Federal Board of Revenue (FBR) today to conduct a detailed investigation into the company’s claims for an inadmissible sales tax refund. The FTO has ordered the FBR to recover an alleged amount of Rs 14.877 billion from Millat Tractors for the tax period of 2017 till 2022. 

“Our finding, based on the documents provided to us by the complainant and our own investigation, is that there has been a gross violation committed by Millat Tractors,” Almas Ali Jovindah, Legal Advisor to the Federal Tax Ombudsman, tells Profit. 

The FTO has recommended that the FBR direct the Chief Commissioner of Inland Revenue to conduct a detailed inquiry into the matter, in accordance with the provisions of the Sales Tax Act, 1990, and relevant SROs. The FTO has also recommended that the director general of the Benami Initiative investigate instances of benami transactions by Millat Tractors Limited, as well as other leading tractor manufacturing companies and submit a detailed report to the FTO within 90 days. 

Looking at the alleged tax fraud 

The senior vice president of the Sindh Chamber of Agriculture, Hyderabad, brought the allegations against the company on behalf of his association. The complaint claimed illegal payment of sales tax refund was made to MTL through the use of self-made documents, fake and flying invoices, benami names, and unrelated CNIC numbers. The complaint also stated that the conditions outlined in sections 73 and 23 of the Sales Tax Act, 1990 were not followed, and the FBR never audited these claims.

The FTO’s order stated that the underlying issue is the alleged tax fraud committed through the payment of inadmissible sales tax refunds to MTL. The order also revealed that tractors are frequently booked with black money and invoiced under benami names and CNIC numbers of unrelated individuals, who often use the tractors for purposes other than agriculture.

“The zamindar’s themselves are coming forward. The tractors were obtained using the sale deeds of zamindars with the connivance of local patwaris and others. The subsidy is basically for the zamindar, and if they have not bought it then how can anyone claim the subsidy,” asks Jovindah.  

The Federal Board of Revenue’s failure 

The FTO’s order highlighted that these instances of neglect and inefficiency in the administration of duties and responsibilities amount to maladministration and should be thoroughly investigated.

“This is a serious lapse on part of the FBR. Their neglect led to them failing to recognise a fraud that was culminating under their nose. We were able to unearth and figure out the fraud through the relatively little investigation we carried out. It would have been much easier for them to figure this out. They overlooked this, and we believe this to be serious negligence on their part,” says Jovindah.  

The verdict 

“Our recommendation is for the FBR to collect the tax, and for Millat Tractors to be denied the refund that they have claimed. Furthermore, the tax that they have evaded in the previous years should also be recovered from them,” Jovindah tells Profit. 

When probed about Millat Tractors’ possible tax evasion in the past, Jovindah states, “They have been engaged in tax evasion since 2017. They could have been engaged in this prior to 2017, however, based on the documents that we have received till now from the zamindars, an agricultural forum, our assessment is that they have been evading taxes for the past five, five and a half years. We do not rule out the fact that they may have been engaged in this prior to that as well. If we were to receive a complaint prior to 2017, then we can conduct an investigation into that as well. However, as of right now our documentation goes back till 2017 based on the current complaint that we received.” 

“The case is with the president of Pakistan in representation so we will have to see whether our assessment and decision is upheld,” Jovindah continues

When asked about what a representation entails. “Representation,” Jovindah states, “Is more parallel to an appeal. Normally, a party can come to us and state that they have an objection to our findings and/or judgement. They can make the appeal that we review our findings and/or judgement.”

“However, if a party chooses not to file an appeal, then they can go to the president of Pakistan. They can state their objections, and how they differ from our findings. With the representation, they have opted to challenge our decision and asked the president to adjudicate,” Jovindah elaborates. 

“We hope that the representation yields a quick decision. Our findings are always based on solid evidence, and we don’t believe there is anything within them that will lead the president of Pakistan to differ from us. We have a very strong case and we believe that our recommendations are based on merit,” Jovindah tells Profit. 

When asked what the FTO’s course of action will be going forward after unearthing this, Jovindah responded by saying “We are very keen to know exactly what is happening with the other tractor manufacturers as well. Maybe the FBR should examine the issue on their end as well as to how this malpractice took place, and if it permeates across the industry because Millat Tractors is not the only tractor manufacturer in Pakistan.” 

Millat has issued a notification to the Pakistan Stock Exchange that it has challenged the FTO’s verdict in the Lahore High Court and with the Commissioner Appeals, LTU, Lahore. The notification also highlights that Millat will file an appeal with the president against the decision, as it believes that it is innocent. It states that there was, in fact, a regulatory change governing the refunds, and that the FTO’s decision fails to take cognisance of that. 


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Daniyal Ahmad
Daniyal Ahmad
The author is a member of the staff, and covers the automobile, energy and advertising insdusties as a sector analyst. He can be reached at [email protected]


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