The Federal Tax Ombudsman has taken serious notice of a major refund scam within the Federal Board of Revenue and has ordered the initiation of criminal and disciplinary proceedings against several senior Inland Revenue officers for their role in processing and sanctioning bogus income tax refunds.
Acting under its own motion powers granted by Section 9(1)
of the Federal Tax Ombudsman Ordinance, 2000, the Ombudsman investigated
widespread irregularities committed by FBR field formations despite repeated
internal warnings.
The investigation revealed that the Directorate General of
Intelligence and Investigation (Inland Revenue), FBR, had issued multiple red
alerts highlighting fake registrations, fraudulent refund claims, and collusion
between taxpayers and departmental officials. However, no action was taken
against the bogus claimants, the complicit officers, bank officials involved in
issuing refund cheques, or the PRAL management, allowing the scam to continue
unchecked.
One prominent case involved M/s China National Electric Wire
& Cable Import & Export Corporation, an AOP registered as a
non-resident permanent establishment, which claimed an inadmissible income tax
refund of Rs. 26.119 million for Tax Year 2012. Under the Income Tax Ordinance,
2001, the tax deducted in such cases was final, making the refund claim
unlawful. Subsequent post-refund audits for earlier tax years revealed that the
company had claimed refunds amounting to over Rs. 123 million, much of which
had already been paid by the department.
Despite detailed investigation reports and proposals for
reopening assessments and recovering the lost revenue under Section 122(5A) of
the Ordinance, the department failed to act. The Ombudsman concluded that this
inaction amounted to grave maladministration, involving both omission and
commission, undermining transparency, good governance, and anti-tax-evasion
efforts.
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