FBR ramps up crackdown on cement sector, penalizes leading manufacturer for tax fraud

The Federal Board of Revenue (FBR) has intensified its audit operations within the cement sector following the imposition of a significant penalty on a leading cement manufacturer for falsely claiming input tax credits, BR reported, citing sources. 

The accusation involves the use of bogus coal purchase invoices which unearthed a complex scheme involving multiple blacklisted entities.

According to the report, the crackdown began after the Large Taxpayers Office (LTO) in Karachi discovered that the company had falsely claimed input tax worth Rs 14.68 million during September 2022. This revelation was made possible by data from the Internal Audit Inland Revenue (IAIR), Karachi, which highlighted suspicious transactions in the company’s filings.

Investigations have identified a prevalent pattern where fraudulent entities engage in fictitious sales and purchases to claim input tax credits illegitimately. This particular case saw a supposed Rs 1.6 billion worth of such transactions, defrauding the government of approximately Rs 316 million in sales tax revenue.

The LTO Karachi’s assessment detailed how the fraud was facilitated through the exploitation of the FBR’s system status indicators and the misuse of tax credits and adjustments. The involved companies, all previously blacklisted, created an illusion of legitimate business activity to substantiate their tax credit claims.

The implicated cement company now faces demands to repay the misclaimed Rs 14.68 million, alongside a matching penalty for the tax fraud and an additional 5% fine for non-payment, with a default surcharge pending. 

The FBR’s investigation also noted a lack of concrete evidence regarding the physical movement or use of coal in manufacturing by the cement company, further implicating them in the fraud.