FBR Proposes to Redefine Sales Tax Fraud to Curb Smuggling

The definition of sales tax fraud has been proposed to be changed to check the smuggling and local trading of goods on which sales tax has not been paid during the supply chain of business. The FBR through C No 1(12) TR/IR-Ops (IR-Code)/2021-114506-R dated July 1, 2023, has issued a draft of the proposed amendment to be made in the fiscal statutes by the Finance Bill, 2024. The statutes are Income Tax Ordinance, 2001; Sales Tax Act, 1990; Federal Excise Act, 2005, and Islamabad Capital Territory (Tax on Services) Ordinance, 2001. The FBR has also proposed to change the definition of “tax fraud” under Sales Tax Act, 1990. Under the proposed law, the traders, who have acquired or possessed smuggled goods, will be deemed to be involved in tax fraud for which there are severe consequences in the law. Similarly, the scope of sales tax fraud is intended to be enlarged by the Federal Board of Revenue revealed through seeking amendment in section 2(37) of the Sales Tax Act. The existing definition of sales tax fraud provided under section 2(37) is quite comprehensive, however, the new proposed definition is more exhaustive and drafted to further enlarge its scope, tax experts added. The existing definition is as under: (37) Tax fraud means knowingly, dishonestly, or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused) – The proposed definition: (37) “tax fraud” means intentional evasion of legally due tax or obtaining of undue refund by submission of false return, statements, or false documents or withholding of correct information or documents and includes- Explanation: Any act or omission mentioned in this clause shall be treated as intentional unless the person accused of tax fraud proves that he had no intention, motive, knowledge, or reason to believe that he was committing tax fraud.