Gang exploits identity of dormant taxpayers to commit Rs81 billion fraud

KARACHI: A cybercrime gang, allegedly facilitated by current and former PRAL and FBR officials, has exploited the dormant identities of taxpayers to extract Rs. 81.434 billion fraudulent transactions between September 2023 and January 2024.

The tax fraud, allegedly facilitated by current and former officials of Pakistan Revenue Automation Limited (PRAL) and the Federal Board of Revenue (FBR), has exposed critical vulnerabilities in the country’s tax collection system.

The matter came to light when Muhammad Sharif, a retired armed forces personnel and owner of Gravity Traders, filed a complaint with the Federal Tax Ombudsman (FTO). Sharif alleged that he was falsely accused of tax fraud with fake transactions worth Rs. 81.434 billion with a GST impact of Rs. 14.658 billion for the fiscal periods from September 2023 to January 2024.

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According to Sharif’s complaint, Commissioner Zone-III illegally blacklisted his Sales Tax Registration Number (STRN) without proper notice or justification. Complainant alleged that he filed “ZERO” sales tax returns during the relevant periods, indicating that no sales or purchases had occurred.

Meanwhile, the FTO investigation revealed a complex web of fraudulent activity orchestrated by a cybercrime gang. The criminals allegedly misused the dormant identities of taxpayers accessed through the FBR website, allegedly in collaboration with current and former PRAL and FBR officials, to submit fake transactions without actual movement of goods or financial transactions, as prescribed by law. This fraud was initiated by filing Schedule C with the sales tax returns, involving fictitious supplies worth Rs. 81.434 billion with a GST impact of Rs. 14.658 billion.

The FTO identified two buyers as part of the scheme, claiming significant tax credits for these fictitious supplies. Both had earlier filed ‘NULL’ returns but suddenly demanded large input taxes without physical movement of goods or banking transactions.

In addition, the investigation also revealed procedural errors within the tax authorities, which allowed such fraudulent activities to take place unchecked. The lack of timely response to deregistration requests contributed significantly to enabling this massive tax fraud.

The FTO has recommended the withdrawal of the blacklisting order against Muhammad Sharif due to a lack of evidence to support the allegations, in addition to conducting an in-depth supply chain investigation to identify the final beneficiaries who received refunds or adjusted taxes based on these fraudulent transactions.

Furthermore, the FTO also urged the implementation of improved oversight and accountability measures within tax administration systems to prevent future cases of such fraud.

This case has exposed significant deficiencies within the FBR’s administrative framework, raising critical questions about procedural integrity and accountability within the main institution responsible for revenue collection.

It also underlined the vulnerability of innocent taxpayers to bureaucratic oversight and criminal activities beyond their control, and called for urgent systemic reforms to safeguard taxpayer interests while ensuring the accountability of those charged with managing public resources. While the FBR is moving towards digitalization, addressing these cyber threats that loom over traditional tax processes has become critical.

Copyright Businessrecorder, 2024