After noticing inconsistency, FBR to hire private auditors to audit sugar industry

It was also seen that local supplies during July 2019 fell by 225%, because of the improvement of 17% in the tax rate in July 2019.

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Federal Board of Revenue (FBR) has made the decision to hire private auditors to examine the books of sugar millers and catch tax evaders. This has been done after the observation of inconsistency in numerous production and supply cycles.

FBR has suggested that RTOs (Regional Tax Offices) and big taxpayers units (BTUs) should conduct a special audit of sugar mills through ‘independent chartered accounting firms’.

“The audit would be conducted under various provisions of Sales Tax Act, 1990 and would be done by special audit panels comprising officers of Inland Revenue and independent chartered accountants,”– FBR revealed in a note to its regional offices.

It also stated that the sugar sector analysis has shown proof of tax evasion in the sugar sector. A 641,000 tons difference was observed in the stocktaking carried out by field formations of FBR and sugarcane commissioner of the three provinces.

It was also seen that local supplies during July 2019 fell by 225%, because of the improvement of 17% in the tax rate in July 2019. The number previously stood at 8% in June 2019.

“This showed that the sugar mills were under-reporting their stock in order to evade tax payments.”

The FBR analysis also showed that the stock holding which ended in June 2018 was 3,147,000 tons, while the closing stock of the year ending in June 2019 was 2,230,778 tons. The decrease was 29%.

“The sugar manufacturers had declared a high quantity of supplies during June 2019 to evade sales tax as the tax rate was to increase in July 2019.”

“The undocumented/under-documented nature of this agriculture sector poses a great challenge to accurately gauge the quantity of sugarcane produced and supplied to a particular mill.” – FBR stated.

Further on, it was discovered that the sugar recovery rate from 11.52% to 8.59% and molasses recovery rate from 4.59% to 3.8% was undocumented and unconfirmed, this the mills made this declaration by themselves.

“This phenomenon has an inherent risk of under-reporting of production,” – the FBR said.
They also said that unregistered dealers/distributors might lead to sale data concealment.

Another issue, which FBR raised, was that the by-products of sugar were misreported by numerous sugar mills. FBR has directed the chief commissioners Inland Revenue of RTOs and LTUs to give input in three days.

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