Rs 2.7 billion scam uncovered in sugar industry

President Alvi confirms FTOs recommendation to take action in accordance with Benami Transactions Law


ISLAMABAD: Federal Tax Ombudsman Dr Asif Mahmood Jah uncovered bog scam of selling sugar to unregistered buyers. An own initiative survey was based on an internal “sector analysis exercise” and so far targeted non-registered/non-NTN/non-reporting holders, who had purchased huge quantities of sugar from sugar mills/manufacturers. The gist of the instant OM was the fact that the sugar sector was one of the major sectors of the economy in which a large number of unregistered people were available for broadening the tax base. As this handy fruit had yet to be harvested, these unregistered buyers, despite huge monetary transactions, have so far mostly remained outside the tax net. FBR’s inability to tap into the potential of this segment was primarily rooted in an operational/procedural paradox, whereby the LTOs that hold jurisdiction over sweets and access to buyer data were not obligated with the enlargement of the tax base and the RTOS which was to assume responsibility for Broadening did not have access to this vitally important data on unregistered persons. In addition, poor audits, compromised enforcement and non-enforcement of relevant law and rules were some other negative contributing factors protecting these high potential unregistered individuals due to inattentiveness and efficiency of the field training.

Such unregistered purchasers being wholesalers, resellers or distributors had to be registered for sales tax, regardless of the value of turnover/supplies within the meaning of Article 14 (e) of the Sales Tax Act 1990. Furthermore, these unregistered persons/entities were easily identifiable because the sugar mills are required to keep records of supplies made during the tax period and issue tax invoices showing name, address, description, quantity, the value of the goods, the CNIC or NTN of the unregistered person to whom the supplies were made and the amount of tax charged under sections 22 and 23 of the Sales Tax Act 1990. Especially , being a limited liability company, it was required to keep full records of all transactions under the SECP Regulations, the Sales Tax Act 1990 and the Income Tax Ordinance 2001 .

Mis Naudero Sugar Mills (Pvt) Limited was a limited liability company incorporated in Pakistan and was engaged in the manufacture and marketing of refined sugar and other related products. It was observed that most of its sale was made to unregistered persons/non-NTN holders/non-filers, who were likely to be registered in sales tax as well as income tax, but despite huge monetary transactions, these potential investors, have become unscathed without disclosing their identity and remain outside the tax net.

Federal Tax Ombudsman Scholar has called Islamabad Revenue Division Secretary’s comments regarding details of unregistered buyers as per special tax year 2018, 2019, 2020 and 2021. As can be seen from the above data Above, the sugar value of Rs. 2.708 billion has been supplied to various unregistered buyers over the past four years and only three buyers own NTN and are listed as active taxpayers. The DR was specifically asked to explain the negligence in collecting data relating to unregistered persons involved in billion rupee transactions during a regular regular audit, or through the application of withholding statements under of section 2360 & H by invoking the provision of section 165 (28) or simply requisition with the concurrence of section 176 of the Ordinance, for the purposes of expanding the Bose tax. The DR could not provide any concrete explanation except to state that as the LTOS deals with large taxpayers, therefore only trying to achieve the huge budget targets by dealing with the cases of giants and multinational corporations, therefore, l Due attention could not be given to broadening the tax base (BTB).

Considering the respective positions, the learned federal tax mediator proceeded to adopt the aforementioned ordinance. Hence the representation by the FBR.

“It is accepted that the formations in the field who hold jurisdiction over Sugar Mills and could enforce the full identifiable details of all buyers by legal means have always failed miserably to secure said data.

In the circumstances of the case, it is observed that the recommendations of the FTO scholar made on the own initiative inquiry are merely the reiteration of the duty/obligation of the departmental authority to deal strictly with non-traders/traders in sugar. registered/non-filers in order to place them under Tax Net for broadening the tax base. During the hearing, the Departmental Representative (DR) suggested that the relevant authorities have already taken the necessary steps regarding the collection of maximum taxes/levies from traders/sugar traders, placing non-registered/ non-filers under Tax Net, by initiating the necessary measures for the Broadening of the Tax Base and the limitation of Benami Transactions. In addition, they have a comprehensive database of sugar production, sale/purchase and traders/traders (registered/unregistered) which will be submitted to the FTO Secretariat along with the implementation report.

This is a unique case of Naudero Sugar Mills, but the same policy needs to be applied across the sugar sector to increase tax compliance and register those outside the primary national responsibility for paying taxes. Accordingly, the Honorable President, in accordance with his decision above, was pleased to have the immediate representation of the FBR.

Rachel J. Bradford