Transparency International Pakistan (TIP) has asked the Federal Board of Revenue (FBR) to clarify its position on a contract awarded by Karachi Port Trust (KPT), as port authority was found guilty of “misuse of the Sales Tax Act and causing a loss of Rs 350 million.
The TIP has also written letters to the Supreme Court of Pakistan, Public Accounts Committee and the National Accountability Bureau (NAB) on the issue. In the letter written to the FBR chairman on September 7, 2012, TIP Advisor Adil Gilani said that the transparency watchdog had received a complaint against a KPT Contractor for illegal refund/exemptions of GST by misusing the rules of Zero Sales Tax for the contractors of international tendered contracts. The TIP had earlier written a letter dated November 20, 2011, to the FBR chairman, seeking clarification on whether the construction material procured by the contractor was exempted from Sales Tax or not. The previous FBR chairman had replied that there was no exemption from Sales Tax in that case.
However, the Karachi Directorate of Intelligence and Investigation (Inland Revenue) took notice of the Complaint and found the KPT contractor guilty of misusing the Sales Tax Act, adding that the tax evasion had caused a loss of over Rs 350 million to the national exchequer until 2011. According to the letter, a contravention report was sent to the Karachi Inland Revenue commissioner on May 7. 2012, for adjudication.
The contravention report found that under Sales Tax Act 1990, zero-rated sales does not apply to purchases for construction material. The report also determined the recovered of over Rs 360 million should be affected from the contractor which request adjudicated by the commission of Inland Revenue within 120 days of the preparation of the date of contravention report. Findings of the contravention report dated May 7, 2012 are summarized below.
The report, according to the letter, found as per available record during 2008-2011, M/s Ssangyong + Usmani JV started claiming refund of Sales Tax which it had paid in respect of goods purchased for the said project from the local market for the total value of Rs 183,984,337 out of which a sum of Rs 157,023,559 was duly refunded while the balance amount of Rs 26,960,778 is remaining. “M/s Ssangyong + Usmani JV claimed zero-rating on the local purchases on the basis of a clarification issued by the Board and did not paid sales tax for an amount of Rs. 74,058,480/- on the local purchases made during 2008-2011. M/s Ssangyong + Usmani JV did not pay sales tax of Rs. 107,644,794/- on imports made during 2008-2011 by claim of exemption under various SRO’s thereon”. The Additional Commission Inland Revenue Karachi adjudicated the case, and vide its order No. 10/2012 dated 28th August 2012 has given the decision. “On the basis of the above considerations, the undersigned has finally arrived at the conclusion that the registered person was involved in the construction of an immoveable infrastructure project which is excluded from the definition of gods. Thus, all sales tax refund and zero- rated purchases availed by the registered person are inadmissible. Further, it is clear that they had passed on the incidence of sales tax on imported goods, but concealed from the buyer that they had availed exemption at the import stage. Thus, they have contravened the provisions of sections 3, 3B, 6(2), 7, 8(1)(a), 8A, 23, 26 and 73 of the Sales Tax and the entire amount of sales tax not paid/short paid/ erroneously recovered is assessable u/s 11(2) and recoverable u/s 36(1) of the Sales Tax Act, 1990. Hence total amount of sales tax of Rs. 351,684,309/- is recoverable from the registered person under the said provisions, along with default surcharge (to be calculated at the time of payment) under section 34 of Sales Tax Act, 1990. Penalty of 100% of the amount of tax involved is also imposed in terms of S. No. 13 of the Table to section 33 ibid. as the actions of the registered person in this regard are clearly deliberate and malafide”, read the decision.
TI demanded the FBR chairman in the letter that besides recovery of Rs 351,684,309 plus a penalty of Rs 351,684,309 for period upto 30 June 2011, further recovery of refund made or zero rated facility availed in FY 2012 are also to be made by FBR, on which no action has yet been initiated. “Further to these recoveries, and in view of the fact that the constructed material to be used for constructing a structure is not allowed the zero rated sales tax, TI-Pakistan request the Chairman to order detailed inquiry and all the refunds taken by different contractors since 1990, on contract of WAPDA, Karachi Port Trust (KPT), Capital Development Authority (CDA), National Highway Authority (NHA), Civil Aviation Authority (CAA), Port Qasim Authority (PQA), Pakistan Railways etc.”