SECTORAL AUDIT REPORT

ON
TAX EVASION/AVOIDANCE IN MAJOR
INDUSTRIAL SECTORS (SUGAR & CEMENT)

FEDERAL BOARD OF REVENUE

(INLAND REVENUE)
AUDIT YEAR 2022-23

AUDITOR-GENERAL OF PAKISTAN
 Preface
Articles 169 and 170 of the Constitution of the Islamic Republic of Pakistan,
1973, read with Sections 8 and 12 of the Auditor-General’s (Functions, Powers
and Terms and Conditions of Service) Ordinance, 2001, require the Auditor-
General of Pakistan to conduct Audit of Expenditure and Receipts of
Government of Pakistan. Sectoral Audit of Tax Evasion/Avoidance in major
industrial sectors (Sugar & Cement) was carried out accordingly.

The Directorate General Audit, Inland Revenue & Customs (North), Lahore
conducted Sectoral Audit of Tax Evasion/avoidance in Major Industrial Sectors
(Sugar & Cement), Federal Board of Revenue (FBR) for the Financial Year
2021-22 during the period from July to November, 2022 and February to May,
2023 with a view to reporting significant findings to the relevant stakeholders. In
addition, Audit also assessed, on test check basis whether the management
complied with applicable laws, rules and regulations in managing the tax
collection from these two sectors. The Audit Report indicates specific actions, if
taken, will help the management realize their objectives. Audit observations
were delivered to the department. It was replied that audit observations have
been and replies will be furnished in due course of time. Requests for convening
the DAC meeting were made to FBR in May & June, 2023. However, the DAC
meeting was not convened till the finalization of the report.

The Sectoral Audit Report is submitted to the President of Pakistan in pursuance

of Article 171 of the Constitution of the Islamic Republic of Pakistan, 1973 for
causing it to be laid before both Houses of Majlis-e-Shoora [Parliament].

Islamabad (Muhammad Ajmal Gondal)

Dated: 7th November 2023 Auditor-General of Pakistan
 TABLE OF CONTENTS
Page #

ABBREVIATIONS i

EXECUTIVE SUMMARY iii

SECTIONS

1. INTRODUCTION 1
2. AUDIT OBJECTIVES 1
3. AUDIT SCOPE AND METHODOLOGY 2
4. AUDIT FINDING AND RECOMMENDATIONS 2
4.1 Organization and Management 2
4.2 Financial Management 9
4.3 Overall Assessment 16

5. CONCLUSION 16

ACKNOWLEDGEMENT 18

ANNEXURES 1-20 19
 ABBREVIATIONS & ACRONYMS

AGP Auditor General of Pakistan

AO Audit Observation
CCP Competition Commission of Pakistan
CEMTEC Cement and Mining Technology Company
COVID Corona Virus Disease

CIR Commissioner Inland Revenue

DAC Departmental Accounts Committee
DTRE Duties and taxes remission on exports
FASTER Fully Automated Sales Tax Refund
FBR Federal Board of Revenue
FED Federal Excise Duty

FTO Federal Tax Ombudsman/ Federal Treasury Officer

GST General Sales Tax
IFRS International Framework of Reporting Standards
IRIS Inland Revenue Information System
IRS Inland Revenue Service
ITMS Integrated Tax Management System

KIBOR Karachi Inter Bank Offered Rate

LTO Large Taxpayers Office
NTN National Tax Number
PRAL Pakistan Revenue Automation Ltd
PSMA Pakistan Sugar Mills Association
RTO Regional Tax Office

SBP State Bank of Pakistan

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SOP Standard Operating Procedures
SRO Statutory Regulatory Order
STGO Sales Tax General Order

STR-10 Sales Tax Return form 10

STRN Sales Tax Registration Number
TDF Tyre Derived Fuel
TTS Track and Trace System
UIMs Unique Identification Markings
WHT Withholding Tax

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 EXECUTIVE SUMMARY

Directorate General of Audit, Inland Revenue & Customs (North),

Lahore conducted Sectoral Audit of Tax Evasion/Avoidance in major industrial
sectors (Sugar & Cement) for the Financial Year 2021-22. The main objectives
of the audit were to investigate and report significant taxation issues in Sugar and
Cement sectors. The audit was conducted in accordance with INTOSAI auditing
standards.

The objective of subject study was to report significant issues in

implementation of current tax regimes in the Sugar and Cement sectors. The
report also raises questions on the complacency of FBR in non-review of ex-mill
price of Sugar. Analysis of Cement sector reveals that Track and Trace System
was not implemented in the Cement sector. Moreover, a need for review of input
tax adjustment of coal in the Cement sector has been identified in this report. An
analysis of financial management revealed that systemic issues pointed out by
the Audit have not been addressed and no reorganization/reform of
processes/procedures has been initiated by FBR.

It is the responsibility of the management to devise a system of robust

internal controls and ensure that they are complied in letter and spirit.
Transparent tax policies coupled with uniform enforcement increase the
compliance of tax laws and decrease trust deficit between citizens and the
Government. Pakistan’s ranking on Doing Business index has improved over the
years. But “Paying taxes indicator” was the worst scoring indicator in Doing
Business index for Pakistan in the country profile published in 2020. FBR is the
gateway to any effort to reform Governance in Pakistan and getting out of the
current economic crisis.

Key Audit Findings

The key findings are as under:

i. Non-transparent valuation of ex-mill price of Sugar. Ex-mill price of

Sugar determined by FBR is currently @ Rs 72.2/kg. The valuation is
non-transparent and under-valued as compared to market rate.

iii
ii. Ex-mill price of Sugar was reviewed by FBR after a lapse of 5 years.
Currently, due to a stay order granted by Lahore High Court FBR’s
power to determine ex-mill price has been suspended.
iii. Tax evasion is prevalent in Sugar sector due to non-registration of
vendors/buyers/distributors who fulfill the criteria for compulsory
registration.
iv. Track and Trace System has not been implemented in the Cement
Industry.
v. Current Tax regime encourages use of coal in Cement industry as
adjustment of input tax of coal is allowed in contrast to spirit of National
Climate Change Policy.
vi. This report identifies and reports financial irregularities to the tune of Rs.
13.226 billion. These have been categorized in terms of following major
internal control failures:
a. There is no provision of validation checks in the return filing
system of FBR. The Audit detected incomplete returns which
were accepted as valid and neither detected by the system nor
the concerned Commissioner.
b. There is no integration of FBR database with provincial
revenue authorities. This leads to loopholes in current self-
assessment scheme whereby taxpayers evade due tax by
declaring arrears of provincial taxes.
c. There are no systematic checks to disallow non-apportioned
and incorrect adjustments of input tax.
d. FBR has failed to completely capture withholding tax
potential despite having complete access to data of vendors as
provided by Controller General of Accounts.
e. Post Audit Refund cells have become dysfunctional after
introduction of FASTER thereby increasing incidence of
irregular/unlawful refunds.

RECOMMENDATIONS

i. Quarterly review of “value of supply/ex-mill price” should be carried

out by FBR to ensure optimum taxation of Sugar sector. Moreover,
the powers granted to FBR under Section 2(46) are vague. The same

iv
 should be rationalized by arriving at the ex-mill price according to the
template laid down in detail by Competition Commission of Pakistan
as per International Framework of Reporting Standards (IFRS).
ii. The Audit recommends that the department should hire expert legal
help to expedite the court proceedings and get the stay order vacated
as soon as possible.
iii. Track and Trace System should be implemented in the cement sector
without any further delay. Moreover, the department needs to justify
non-implementation of Track and Trace System in the Cement sector.
iv. A policy review is needed to resolve the conflict in current tax regime
and climate change policy for the cement sector. Imported coal is the
primary raw material used in cement sector and its adjustment is
admissible as input tax. Therefore, to discourage the use of coal either
its admissibility as input tax may be successively disallowed or
carbon tax may be imposed on the cement sector.
v. Internal controls need to be strengthened and reformed to ensure
compliance of tax regimes as follows:
a. Improvement in return filing system through provision of
validation checks to effectively monitor the self-assessed income
is needed. The department should also justify the reasons behind
inaction of concerned Commissioner.
b. Databases of FBR and provincial revenue authorities should be
integrated for verification of actual tax liability
c. The Audit recommends instituting 100% desk audit of the
corporate sector in accordance with established policies of FBR to
disallow inadmissible adjustments and non-apportionment of
input tax.
d. The Audit recommends instituting mechanisms for
implementation of withholding regime at least to the extent of
data already available with FBR.
e. Post-refund Audit Cells with access to CSTRO should be re-
constituted to carry out desk audit of refunds after issuance.
_______________________________________________________

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1. INTRODUCTION

Directorate General of Audit Inland Revenue (North), Lahore planned

and conducted Sectoral Audit on tax evasion/avoidance in major industrial
sectors (sugar & cement) for the Financial Year 2021-22. The objectives of the
audit were to examine the assessment and collection of direct and indirect taxes
and the impact of their under-valuation under the relevant laws. It was found that
the organization failed to implement Track and Trace System (TTS) in the
cement sector. The report also raises questions on the seriousness of
management in tackling systematic loopholes in the return filing systems which
have been repeatedly pointed out by the Audit.

In Pakistan sugar industry is one of the top five industries in terms of

revenue generation. It contributed revenue of Rs. 65,449 million as sales tax
during the Financial Year 2021-22 which was 6% of total sales tax collection of
FBR with a growth of 13.3% compared to the previous year. The sugar sector
has only been paying sales tax in VAT mode which is lower in value than rest of
the market.
Cement industry is also major revenue contributing industry of Pakistan
and contributed revenue of Rs. 35,925 million as sales tax during the Financial
Year 2021-22 which was 3.3% of total sales tax collected by FBR with a decline
of 3.6% in total collection as compared with 2020-21. In addition to sales tax on
retail price Federal Excise Duty on production of cement is also levied which is
26.7% of total FED collected by FBR. Cement is placed in the First Schedule of
Federal Excise Act, 2005 and subjected to lowest FED @ 1.50 Rs per kg.

2. AUDIT OBJECTIVES
The major objectives of audit were to examine;

i. Compliance with applicable laws and rules concerning proper assessment

and timely collection of taxes,
ii. Impact of under-valuation as compared to open market prices of sugar to
supply sugar to a commoner at an affordable price,
iii. Whether payment of taxes on bi-products, i.e., molasses, baggass, and
mud, etc., has been made or not by the sugar industry,

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 iv. FBR’s responsiveness to market forces in the determination of the value
of supply and collection of revenue from the sectors,
v. Evaluation of the internal control environment of FBR and its field
formations.

3. AUDIT SCOPE AND METHODOLOGY

Majority of cement and sugar manufacturers fall under the jurisdiction of

LTOs, Islamabad, Lahore and Multan, RTOs, Peshawar and Sialkot. To check
compliance of law and rules, under valuation of goods, non/short payment of
taxes, non/short withholding of taxes and adjustment of input tax/refund, this
Directorate planned to conduct sectoral audit on tax evasion/avoidance at three
locations (comprising a significant share of cement and sugar mills). i.e. LTOs
Lahore, Islamabad and RTO, Peshawar. The audit was conducted during
February to May 2023.

The audit methodology involved data collection, desk auditing, and

discussions with management. Based on data collected from FBR field offices,
out of fifty-one (51) sugar and eleven (11) cement units, the Audit selected a
sample size of thirty-four (34) sugar and ten (10) cement units. Afterwards, an
analytical and comparative analysis was performed.

4. AUDIT FINDINGS

This report includes audit observations on organization and management

issues, systemic issues of financial management and overall assessment of
taxation in sugar & cement sectors. Audit findings are as under.

4.1 Organization and Management

The Federal Board of Revenue (FBR) in Pakistan is responsible for

collection and administration of various taxes, including income tax, sales tax,
federal excise and customs duty. By the enactment of FBR ACT, in July 2007,
the Central Board of Revenue became Federal Board of Revenue. FBR works
according to following organogram.

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 Domestic Taxes (Inland Revenue), comprising Income Tax, Sales Tax and
Federal Excise Duty, constitute about 90% of the revenue collected by FBR. The
Inland Revenue Wing of the FBR was created, combining the three domestic
taxes to improve the tax to GDP ratio.

One of the significant challenges faced by the FBR, was to track and trace
the movement of goods within the country to ensure that all taxes due were paid
correctly. To address this challenge, the FBR developed a Track and Trace
System (TTS) that was to enable it to track, monitor the production and sales in
sugar, tobacco, fertilizer and cement. The system was to be integrated with the
FBR's existing IT infrastructure/data center, to ensure seamless data exchange
and efficient processing of tax-related information.
Both the sectors selected by this directorate for Audit use indigenous raw
materials .i.e. sugarcane and clinker. However, cement industry is highly
dependent on imported coal for energy. These sectors remained unorganized due
to under-reporting of production and short payment of taxes.

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4.1.1. Non-transparent valuation of ex-mill price of Sugar

As per Section 2(46)(e) “Value of Supply” in case where there is

sufficient reason to believe that the value of a supply has not been correctly
declared in the invoice, the value determined by the “Valuation Committee”.
Moreover, as per Section 2(46)(g) in case of a taxable supply, with reference to
retail tax, the price of taxable goods excluding the amount of retail tax, which a
supplier will charge at the time of making taxable supply by him, or such other
price as the Board may, by a notification in the official Gazette, specify.

It was observed by the Audit that the Board fixes ex-mill price of sugar
through Statutory Regulation Orders (SROs). This price serves as a basis for
FBR to levy GST on declared sales of sugar by the sector. The current value of
sugar was fixed vide SRO 1027(I)/2021 at Rs 72.22 per kg. Meanwhile, sugar
prices in retail went up from Rs 90 per kg to Rs 130 per kg1. Commodity price of
sugar was Rs 199 during the month of July 2023 as reported by Pakistan Bureau
of Statistics (PBS). In addition to this, Sugar Inquiry Commission reported that
the sugar industry overstates its ex-mill price. This overstatement is done by
including GST in the cost of production, inflating the cost of production, and off
the book purchases and sales. The report also states that for every Rupee of
overstated cost “the sugar mills of Pakistan earn approximately Rs. 5.2 million x
1000 (total production of 5.2 million tons) which equals Rs. 5.2 billion – all at
the expense of the consumers”. Audit is of the opinion that notified “ex-mill
price” is set in a non-transparent manner i.e. the procedure for arriving at the cost
have neither been laid down in rules nor made public. Moreover, the said value
of supply/ex-mill price doesn’t coincide with the open market rate. This
undervaluation of value of supply (ex-mill price) causes losses of potential
revenue each year.

The Audit recommends quarterly review of “value of supply/ex-mill

price” to ensure optimum taxation of sugar sector. Moreover, the powers granted
to FBR under Section 2(46) need further codification in rules and procedures.
The same should be rationalized by arriving at the ex-mill price according to the
template laid down in detail by CCP as per International Framework of
Reporting Standards (IFRS).

1
https://www.brecorder.com/news/40236168

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4.1.2. Non-revision and subsequent suspension of FBR’s powers to
determine ex-mill price of Sugar

As per Section 2(46)(e) “Value of Supply” in case where there is

sufficient reason to believe that the value of a supply has not been correctly
declared in the invoice, the value determined by the “Valuation Committee”.
Moreover, as per Section 2(46)(g) in case of a taxable supply, with reference to
retail tax, the price of taxable goods excluding the amount of retail tax, which a
supplier will charge at the time of making taxable supply by him, or such other
price as the Board may, by a notification in the official Gazette, specify.

Sugar barons of Pakistan have been reportedly involved in malpractices

of hoarding, black-marketing, delaying payments to farmers, and manipulation
of sugar prices. Due to this Competition Commission of Pakistan (CCP) imposed
penalties @ 5% on the annual turnover of 2019 on the Pakistan Sugar Mills
Association (PSMA) and its members for acting as a cartel and manipulating
market prices2. Currently, the Lahore High Court on the petition of Pakistan
Sugar Mills Association (PSMA) has suspended determination of ex-mill price
by FBR. The Audit observed that the last ex-mill price was reviewed after a
lapse of five (05) years (the previous SRO was issued in 2016 which fixed the
price at Rs 60/kg). FBR’s current dispensation of ex-mill price determination is
inactive as evident from only one (01) review of ex-mill price in five (5) years.
FBR’s mandate to determine ex-mill price of sugar has been rendered ineffective
because of the stay order. Furthermore, sugar sector has a reported history of
market manipulation and is now using litigation to handicap Government
authorities. This depicts inaction by the FBR management in exercising and
safeguarding its mandated authority and watching the interests of Federal
Government and general public.

The Audit recommends that the department should hire expert legal help
to expedite the court proceedings and get the stay order vacated as soon as
possible.

2
Sugar Inquiry Commission Report, 2020

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4.1.3. Tax evasion in sugar sector due to non-compliance of compulsory
registration

As per section 14 of Sales Tax Act 1990, “every person engaged in

making taxable supplies in Pakistan, including zero-rated supplies, falling in any
of the following categories is required to be registered under this Act, namely:-
(a) a manufacturer who is not running a cottage industry; (b) a retailer who is
liable to pay sales tax under the Act, excluding such retailer required to pay sales
tax through his electricity bill; (c) an importer; (d) an exporter who intends to
obtain sales tax refund against his zero-rated supplies; (e) a wholesaler, dealer or
distributor.”
The Audit has repeatedly pointed out the issue of non-registration of
taxpayers who are liable for compulsory registration in a number of sectors
including sugar and cement. Similarly, Federal Tax Ombudsman (FTO)
unearthed a scam of selling sugar to unregistered buyers in 2022 3. FBR filed an
appeal to the President against the orders of FTO. However, President of
Pakistan disposed of the matter with the observation that FBR was not vigilant in
collecting information related to unregistered buyers and was content with
whatever was being submitted in the monthly sales tax returns of sugar mills. He
regretted that the data of unregistered buyers was not being examined for the
purpose of broadening the tax net. The Audit is of the view that FBR’s field
formations hold jurisdiction over sugar mills and can secure complete particulars
of all buyers by proper and timely analysis of withholding statements. Despite
the above FBR failed to register all the dealers and distributors of sugar sector.
Audit recommends compulsory registration of all the distributors/dealers
who meet the prescribed criteria as soon as possible to broaden the tax net.
Moreover, details of newly registered dealers/distributors of sugar sector, on the
basis of data of sugar mills be provided to Audit along with recovery made from
them as a result of directions of the President of Pakistan and recommendations
of FTO.

3
PR. No. 64B/2022 dated 25.04.2022

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4.1.4. Non-implementation of Track and Trace system in cement industry

According to Sales Tax General Order (STGO), No 19 of 2022, issued

vide C. No. 2(4) T&Ts/Cement/2021-14542-R Islamabad dated 27 June 2022
notified that no cement bag shall be allowed to be removed from a production
site, factory premises/manufacturing plant, or import station without affixation of
tax stamp/Unique Identification Markings (UIMs) with effect from 1 st October
2022.

During the audit of Commissioner IR, Zone-III, LTO, Lahore for the year
2021-22, it was revealed that the Track and Trace System (TTS) which was
supposed to be implemented for electronic monitoring of production and sale of
cement bags w.e.f. 1st October 2022 under SRO 250 (I) 2019 dated 26th
February 2019 had not been implemented yet in the cement sector. It is pertinent
to mention here that after the implementation of the TTS in the sugar sector,
there was a substantial increase in the first year of revenue collection by 34% in
direct taxes and 18% in indirect taxes. Reportedly, the cement industry is
dragging the implementation over the ownership of cost of TTS. The cement
sector has been reported for collusive activities by the Competition Commission
of Pakistan (CCP) in the past and penalized with Rs 6.3 billion on account of
forming a cartel and involvement in prohibited agreements 4. Non-
implementation of TTS raises questions on the performance of the department
and seriousness of upper management in monitoring and affecting the timelines.

Audit recommends that TTS should be implemented in the cement sector

without any further delay. Moreover, the department needs to justify non-
implementation of TTS in the cement sector.
(DP N0 21792-ST)

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https://tribune.com.pk/story/2276106/competition-commission-of-pakistan-busts-cement-
sector-cartel

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4.1.5. Taxation in cement sector – At the cross-roads of climate change and
development

There are two types of taxes levied on cement sector. Firstly, GST is
levied @ 17% under Schedule 3 of Sales Tax Ordinance, 2001. Secondly, FED is
levied under First schedule of FED Act 2005 @ Rs 1.5/kg. According to
International Energy Agency the cement sector is the third-largest industrial
energy consumer and the second-largest industrial CO2 emitter globally.
Moreover, one of the policy measures as enunciated in the National Climate
Change Policy, 2022 is to consider introducing carbon tax on the use of
environmentally detrimental energy generation from fossil fuels, in addition to a
ban on the pursuit of coal fired power plants.

Pakistan ranks among top five exporters of cement and is the 14 th largest
cement producer in the world. As per research conducted by Cement and Mining
Technology Company (CEMTEC) Pakistan is amongst the three cement hotspots
in the world where demand is expected to grow rapidly5. The highest cost
associated with cement production is of energy. Most of the cement sector has
shifted to coal fired plants for their energy requirements after supply of natural
gas became unsustainable. Currently, the cement sector uses imported coal and
Tyre derived fuel (TDF) for its energy needs. In addition to this, current law
provides for adjustment of the coal used in cement sector as input tax against
output tax. On the other hand, National Climate Change Policy enunciates ban
on coal fired power plants and imposition of carbon tax. According to World
Bank intensification of climate change and environmental degradation is
projected to further aggravate Pakistan’s economic fragility; and could ultimately
reduce annual GDP by 18 to 20% per year by 20506. The cement sector has been
lobbying for reduced GST rates and exemption from FED citing higher rates as
compared to neighboring developing countries. However, in India incidence of
GST is higher than Pakistan at 31.36%7. Moreover, tax evasion especially of

http://www.pbit.gop.pk/cement_allied#:~:text=Production%20capacity%20of%20cement%20m
anufacturers,to%20grow%20at%20its%20fastest.

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https://tribune.com.pk/story/2386827/pakistans-gdp-can-fall-18-to-20-by-2050-due-to-
climate-change-risks

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https://www.5paisa.com/stock-market-guide/tax/tax-on-cement
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FED is widely reported in the cement sector8. High environmental costs coupled
with tax evasion in cement sector call for tougher regulations and enforcement in
the cement sector. Viewed in the lens of dubio pro natura (in case of doubt, all
proceedings before nature), economic development has to be pursued in a
sustainable manner for the sake of future generations.

The Audit recommends that a policy review is needed to resolve the clash
in current taxation and climate change policies for the cement sector. Adjustment
of input tax on coal should be incrementally disallowed in order to discourage
the use of coal in the cement sector in the coming years.

4.2 Financial Management

Sugar and cement sectors fall in top five industries in terms of revenue
generation in Pakistan. Sugar sector contributed revenue of Rs. 65,449 million as
Sales Tax during the Financial Year 2021-22. It was 6% of the total sales tax
collection of FBR with a growth of 13.3% as compared with the previous year.
On the other hand, cement sector contributed Rs 35,925 million as Sales tax
during the Financial Year 2021-22. It was 3.3% of total sales tax collected by
FBR with a decline of 3.6% in total collection as compared with 2020-21.

4.2.1. Financial irregularities amounting to Rs. 13.266 billion and inertia of

FBR in addressing systemic issues of internal controls

According to various provisions of Income Tax Ordinance, 2001, Sales

Tax Ordinance, 2005 taxation regime for sugar sector involves Sales tax on retail
price. FED is also levied in addition to Sales tax for the cement sector.

The Audit raised financial observations amounting to Rs. 13.266 billion

for the FY 2021-22 in the sugar and cement sectors across FBR formations.
These observations have been repeatedly pointed out by the Audit in previous
Audit reports as well. This points towards indifference of the management in
resolving these systemic issues. These observations are summarized in the
following table and graph:

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Sr. Amount (in
Nature of observation
No. Rs. Million)
1 Non-recovery of arrears of tax 3,782.87
Discrepancies amongst figures of sales in income tax
2 2,287.45
returns and sales tax returns
3 Excess/inadmissible adjustment of input tax 3,029
4 Short/non-deduction of withholding tax 1,603.58
Adjustment of prior year’s refund without
5 388.994
verification
6 Non-imposition of the penalty and default surcharge 385.248
7 Inadmissible claim of provisional expenses 364.02
8 Non-realization of WWF 346.574
9 Non-deduction of withholding tax on royalty 305.935
10 Non/short-collection of advance tax 250.529
11 Excess claim of withholding tax credit 163.35
Non-realization of sales tax and further tax on sale of
12 148.637
scarp and fixed assets
13 Non-withholding of tax on commission 60.5
Non-realization/ deduction of withholding tax on
14 48.838
dividend
15 Non-taxation of income from other sources 31.208
16 Incorrect claim of initial allowance 11.215
17 Short realization of minimum tax 10.204
18 Non-withholding of income tax on equipment rental 7.066
Total 13,226.54

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 It is evident from the table and the pie chart above that financial
observations raised by the Audit can be categorized into four major heads; (1)
Non-recovery of arrears of tax, (2) Discrepancies in figures of sales reported in
submitted returns, (3) Excess adjustment of input tax, and (4) Short deduction of
withholding tax. All of the above issues are systemic and pointed out by the
Audit every year. The failure of tax authorities in tackling these prevalent issues
of non-compliance limit the Audit to reporting on the same issues. These
systemic issues and their internal controls are discussed in the following paras.

4.2.1.1. Non-integration of FBR database with provincial revenue

authorities

After the 18th Amendment to the Constitution of Pakistan, the provincial

governments are increasingly involved in taxation and revenue collection. Sales
Tax on goods is levied by the Federal Government while Sales Tax on Services
is levied by the provincial governments. The taxpayers are required to submit
returns separately to FBR and provincial revenue authorities. According to
Pakistan Revenue Automation Limited (PRAL) website “IRIS is one of the best
integrated systems in the country that encompasses various subsystems into one
larger system”9.

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https://www.pral.com.pk/

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 Despite the fact that the clientele of PRAL includes FBR and all
provincial authorities there is no integration between the databases of these
authorities. This leads to creation of certain loopholes which are exploited by
both the sectors to evade taxes i.e. by declaring income/liabilities in provincial
domain. The Audit has repeatedly pointed out the issue of non-recovery of tax
arrears in Sugar and cement sectors. Under the self-assessment scheme the
taxpayers declare their liabilities which should be automatically accounted for,
before the submission of subsequent returns. Currently, tax liabilities are
declared by the taxpayers in their annual accounts as “notes”. According to the
FBR management non-recovery of these arrears is attributed to the fact that these
arrears are provincial taxes. The Audit is of the view that the prescribed format
of returns does not require identification of relevant provincial/federal authority.
There are no designated fields in income tax returns which identify the relevant
tax authority either. Moreover, due to non-integration of FBR with provincial
revenue authorities these arrears and the subsequent adjustment can’t be cross-
checked or verified.

The Audit recommends integration of databases of FBR and provincial

revenue authorities for verification of actual tax liability. In addition to this,
systematic checks should be introduced in the existing database such as online
submission of tax liability/arrears in designated fields of income tax return
instead of declaration in the “notes”.

4.2.1.2. Tax evasion through non-apportionment and inadmissible

adjustments of input tax

According to Section 8(2) of the Sales Tax Act 1990, if a registered

person deals in taxable and non-taxable supplies, he can reclaim only such
proportion of input tax attributable to taxable supplies. Adjusting input tax paid
on raw materials relating to exempt supplies shall not be admissible. Further,
Section 73(4) of the Act provides that a registered person shall not be entitled to
deduct input tax (credit adjustment or deduction of input tax) which is
attributable to such taxable supplies exceeding, in the aggregate, one hundred
million rupees in a Financial Year or ten million rupees in a tax period as are
made to a specific person who is not registered.
The Audit has observed that excess adjustment of input tax is reported
primarily because of two reasons in Sugar and cement sectors; (i) Non-

12
apportionment of input tax on sales to registered and non-registered persons and
(ii) adjustment of input tax against output tax on the purchase of inadmissible
items (e.g building material in case of cement industry). These issues have been
reported to FBR repeatedly and are indicative of weak desk audit and failure of
the tax administration in reforming/reorganizing its policies and processes.

The Audit recommends implementation of established policy of FBR that

requires 100% desk audit of the corporate sector.

4.2.1.3. Ineffective implementation of withholding regime in sugar & cement

sectors

According to Section 153 read with Section 161 of the Income Tax
Ordinance 2001, “every prescribed person making a payment in whole or part,
including payment by way of advance to a resident person or permanent
establishment in Pakistan of a non-resident person for the supply of goods and on
the execution of a contract, other than a contract for the sale of goods or the
rendering of or providing services, shall, at the time of making the payment,
deduct tax from the gross amount payable including sales tax, if any at the rate
specified in Division-III of Part-III of the First Schedule to the Income Tax
Ordinance 2001”.
FBR has relied heavily on withholding taxes for revenue generation over
the years. During FY2021-22, 67% of FBR’s direct taxes came from withholding
taxes10. In addition to this, digital transactions have seen a phenomenal growth in
Pakistan after COVID-19. According to State Bank of Pakistan (SBP) mobile
phone banking and internet banking was reported at Rs11.9 trillion and Rs10.2
trillion respectively11. Withholding tax regime in Pakistan relies on capturing
transactions through withholding agents. The Audit observed that FBR has
access to data of relevant Accountant General Offices which reports 1/5th of all
the transaction happening in public sector. However, even these transactions
made by the public sector escape tax authorities as the officers/officials of FBR
do not initiate any action to recover the remaining 4/5th of the revenue. Repeated

10
https://primeinstitute.org/withholding-tax-regime-doing-business-perspective/

11
Annual Payment Systems Report for the fiscal year 2021-22, State Bank of Pakistan, dated 23-
12-2022

13
pointation of these transactions by the Audit is evidence of ineffective
implementation of withholding tax regime and complacency of FBR.

The Audit recommends instituting mechanisms for 100% implementation

of withholding regime at least to the extent of data already available with FBR.

4.2.1.4. Dysfunctional Post-refund Audit Cells

Section 170 of the Income Tax Ordinance 2001, read with circular No. 05
of 2003 of FBR, eligibility for tax refund subject to certain conditions like there
must be a valid assessment order for the claim of a refund with applicable tax
rates, there must be a refund application of refund claimed, there should not be
any outstanding tax liability against the taxpayer. There should not be any
adjustment of the final tax payment against regular tax liability.

Refund payments were previously made manually by FBR before

introduction of Fully Automated Sales Tax Refund (FASTER). FASTER was
introduced for the ease of taxpayers and reduction in processing times. However,
the Audit has been reporting an increase in number of violations in refund
payments over the years. Previously, Post-refund Audit cells were responsible
for carrying out desk audit of refund claims and validating the same after refunds
were processed. Now these cells have been made dysfunctional by FBR after the
introduction of FASTER.

The Audit recommends that Post-refund Audit Cells with access to

CSTRO should be mandated to carry out desk audit of refunds after issuance.

4.2.1.5. Non-provision of validation checks in the return filing system of

FBR

Section 114 (2) of the Income Tax Ordinance 2001, prescribes the form
of income return and types of documents that are required to be submitted along
with the return. The procedure in case of non-compliance with above provision is
also provided in this section.
During the sectoral audit for the Tax Year 2021, Audit observed that six
(06) taxpayers under the jurisdiction of LTO, Lahore filed income tax returns for
the tax year 2021 but failed to furnish the return along with complete annual
audited accounts duly certified by a chartered accountant. Therefore, the returns
were to be declared invalid instead of treating them as assessment orders. The
14
system failed to flag such instances and the concerned authorities did not take
any action to ascertain that the subject returns were complete and as per law.
Audit has repeatedly pointed out such cases where blank documents were
submitted with returns and the same were accepted by the system. This resulted
in the acceptance of invalid returns by the tax authorities, as detailed below:

Taxpayer Name Tax Year

Al-Arabia Sugar NTN 7350354 2021
Ramzan Sugar Mills NTN-0224046 2021
Haq Bahu Sugar Mills (Pvt.) Limited NTN-1743968 2021
Macca Sugar Mills (Pvt) Ltd NTN-1418769 2021
(DP No 21791-IT)
Audit recommends improvement in return filing system through
provision of validation checks to effectively monitor the self-assessed income.
The department should also justify the reason behind inaction of concerned
Commissioner.

4.2.1.6. Non-filing/incomplete filing of sales tax returns in Sugar sector

According to Section 26 of the Sales Tax Act, 1990 every registered

person is required to file sales tax return in the prescribed format (STR-10).
Furthermore, as per Section 33(1) provides that in case of failure of submission a
penalty of Rs. 10,000 will be charged on the defaulter.

During the audit of Commissioner IR, Zone III and IV, LTO Lahore it
was observed that forty (40) private/public limited companies in sugar and
cement sectors did not file the subject returns. Moreover, no legal action was
initiated by the authorities to penalize the defaulters. In addition to this, the Audit
observed that in an additional thirty three (33) cases exempt purchases of
sugarcane (which is the main raw-material) were not declared in the Sales Tax
Return-10 (STR-10) form. The veracity of declared production, sales, stocks etc.
cannot be established in the absence of this vital information.

The Audit recommends enforcement measures to ensure timely filing of

sales tax returns by the sector. These measures may include incremental increase
in penalties and blacklisting of defaulters from claiming refunds for the non-
filing period. Moreover, the Audit recommends revision of regulations for self-

15
declaration by inclusion of vital information such as exempt purchase of
sugarcane in the STR-10 form for sugar sector.

4.3 Overall Assessment

Reports of tax evasion and cartelization by Sugar and cement sectors

have been increasingly reported in the media. Competition Commission of
Pakistan has also exposed cartelization in both these sectors. FBR has tried to
regulate these sectors through introduction of the Track and Trace system. But
the same has not been done with uniformity as evident from non-implementation
in the cement sector. Enforcement of FBR remains weak in both sectors as
systematic loopholes are exploited by the taxpayers in both sectors. Non-
recovery of tax arrears, loopholes in self-declaration scheme, non-capture of full
potential of withholding regime, non-registration of buyers, and non-integration
of databases remain key challenges for FBR. In addition to lack of systematic
checks the Audit found legal and policy issues hindering tax compliance in these
sectors. One of these issues is undervaluation and non-implementation of ex-mill
price in sugar sector. In the cement sector apparent contradiction in current tax
regime and national climate change policy has been pointed out by the Audit.

5. CONCLUSION
5.1 Key issues for future:
Audit identified the following key issues that have hampered and would
continue to hamper revenue collection in subject sectors:

 Failure in implementation of Track and Trace system in cement sector

should be investigated by the management so that informed decision
making and planning may be carried out in future.
 Failure to timely review and determine “ex-mill price” and litigation in
the sugar sector is leading to potential revenue loss.
 A re-balancing act is required in tax regime of cement sector to address
the challenge of climate change.
 The reform drive in FBR has focused on digitalization. However, in the
absence of dedicated and trained staff and officers for audit/assessment,
financial irregularities are frequent and go unchecked despite the fact that
detailed procedures are laid down.
 Failure to conduct timely audit of self-assessed income has increased the
risk of loss of government revenue.
16
5.2 Lessons identified:

Implementation of Track and Trace system in sugar sector resulted in

increase in sales tax collection therefore there is an urgent need to replicate the
same in cement sector.

17
 ACKNOWLEDGEMENT
We wish to express our appreciation to the management and staff of field
formations of the Federal Board of Revenue i.e., LTO, Lahore, Islamabad and
RTO Peshawar for the assistance and cooperation extended to the auditors during
this assignment.

18
 Annexure-1
(Para 4.2.1)

Short realization of tax due to discrepancies amongst figures of sales in

income tax returns and sales tax returns causing loss of revenue
Rs. 2,287.447 million
Sr. DP No Office AO No Amount in Cases Name Of
No Rs. Taxpayer
1 D.G. Khan Cement
LTO Lahore 8/ST 215,619,175 1 Company
2 D.G. Khan Cement
LTO Lahore 14/ST 62,734,320 1 Company
3 KOHAT Cement
LTO Lahore 15/ST 14,767,200 1 Company
4 Abdullah Sugar
LTO Lahore 43/ST 2,723,834 1 Mills Ltd
5 Ashraf Sugar Mills
LTO Lahore 50/ST 68,826,149 1 Limited
6 21768/ST Etihad Sugar Mills
LTO Lahore 91/ST 433,572,268 1 Limited
7 Haq Bahu Sugar
LTO Lahore 121/ST 57,199,480 1 Mills
8 Jauharabad Sugar
LTO Lahore 125/ST 271,676,332 1 Mills Ltd
9 Hunza Sugar Mills
LTO Lahore 173/ST 10,776,305 1 (Pvt) Ltd
10 Popular Sugar
LTO Lahore 183/ST 95,893,447 1 Mills Ltd
11 Flying Cement
LTO Lahore 208/ST 59,104,599 1 Company Ltd
12 Chanar Sugar Mills
LTO Lahore 228/ST 318,572,747 1 Limited
13 RTO Khazana Sugar
Peshawar 16/ ST 24,337,810 1 Mills
14 Ramzan Sugar
LTO Lahore 81/ST 18,567,350 1 Mills
15 LTO Lahore Al-Arabia Sugar
48/IT 1,588,025 1 Mills Ltd
16 LTO Lahore Chaudhary Sugar
56/IT 3,067,978 1 Mills Lid
17 LTO Lahore Tariq Corporation
21772/IT 71/IT 463,573 1 Limited
18 LTO Lahore Macca Sugar Mills
86/IT 9,938,557 1 (Pvt) Ltd
19
19 LTO Lahore Kashmir Sugar
97/IT 17,175,503 1 Mills Limited
20 LTO Lahore Seven Star Sugar
107/IT 2,978,110 1 Mills
21 LTO Lahore Jauharabad Sugar
126/IT 465,617,905 1 Mills Ltd
22 LTO Lahore Tandlianwala
131/IT 120,731,433 1 Sugar Mills
23 LTO Lahore Shahtaj Sugar Mills
154/IT 7,576,331 1 Limited
24 LTO Lahore Chanar Sugar Mills
221/IT 3,938,178 1 Limited
Total 2,287,446,609 24

20
 Annexure-2
(Para-4.2.1)

Excess/inadmissible adjustment of input tax resulting in short realization of

sales tax Rs. 2,109.922 million

Sr. DP No Office AO Amount in Cases Name Of

No No Rs. Taxpayer
1 D.G. Khan
Cement Company
LTO LHR 11 14,044,780 1 Ltd
2 D.G. Khan
Cement Company
21767 LTO LHR 12 219,367,426 1 Ltd
3 ST D.G. Khan
Cement Company
LTO LHR 13 12,890,902 1 Ltd
4 D.G. Khan
Cement Company
LTO LHR 35 1,807,983,592 1 Ltd
5 Shahtaj Sugar
LTO LHR 151 217,324 1 Mills Limited
6 Shakarganj
LTO LHR 168 3,494,346 1 Limited
7 Shakarganj
LTO LHR 201 19,122,218 1 Limited
8 Flying Cement
LTO LHR 211 32,801,528 1 Company Limited

Total 2,109,922,116 8

21
 Annexure-3
(Para-4.2.1)

Short/non-deduction of withholding tax resulting in loss of revenue

Rs. 1,603.582 million

Sr. DP No Office AO Amount in Ca Name of

No No Rs. ses Taxpayer
1 Chaudhary Sugar
LTO Lahore 60 711,092 1
Mills Limited
2 Abdullah Sugar
LTO Lahore 62 15,712,312 1
Mills Limited
3 Al-Arabia Sugar
LTO Lahore 64 4,577,343 1
Mills Limited
4 Ashraf Sugar
LTO Lahore 65 6,141,170 1
Mills Limited
5 Tariq
Corporation
LTO Lahore 76 3,048,082 1
Limited
6 Ramzan Sugar
LTO Lahore 84 17,464,871 1
Mills
7 Etihad Sugar
LTO Lahore 96 9,748,088 1
Mills Limited
8 Kashmir Sugar
LTO Lahore 100 13,425,984 1
21769 IT Mills Limited
9 Gharibwal
LTO Lahore 142 303,540,216 1
Cement Limited
10 Tandlianwala
LTO Lahore 147 7,636,710 1
Sugar Mills Ltd
11 D.G. Khan
Cement
LTO Lahore 155 459,386,602 1
Company Ltd
12 Kohat Cement
Company
LTO Lahore 156 666,653,956 1
Limited
13 RTO
Dandot Cement
Peshawar 157 2,772,613 1
Company Limited
14 Shakarganj
LTO Lahore 166 4,021,155 1
Limited

22
15 LTO Lahore Hunza Sugar
177 11,592,857 1
Mills (Private)
16 LTO Lahore Popular Sugar
186 11,998,941 1
Mills Limited
17 LTO Lahore Noon Sugar
195 13,205,620 1
Mills Limited
18 Flying Cement
Company
LTO Lahore 210 35,694,158 1
Limited
19 LTO Lahore Chanar Sugar
224 5,589,266 1
Mills Limited
20 RTO
Khazana Sugar
Peshawar 15 8,611,518 1
Mills
21 LTO Lahore Jauharabad
Sugar Mills
128 2,049,778 1
Limited
Total 1,603,582,332 21

23
 Annexure-4
(Para-4.2.1)

Inadmissible adjustment of input tax on items not used in taxable supplies

resulting in short realization of sales tax Rs. 920.396 million

Sr. No DP No Office AO No Amount in Cases Name of

Rs. Taxpayer
Maple Leaf
1 LTO Lahore 36 239,576,506 1 Cement
Factory
Kohat
2 Cement
LTO Lahore 37 19,122,541 1
Company
Limited
Pioneer
3 LTO Lahore 42 25,720,739 1 Cement
Limited
Ashraf
4 LTO Lahore 55 61,930,547 1 Sugar Mills
Limited
Chaudhray
5 LTO Lahore 58 3,939,321 1 Sugar Mills
Limited
Abdullah
6 LTO Lahore 68 7,685,414 1 Sugar Mills
Limited
Macca
7 LTO Lahore 87 68,767,362 1 Sugar Mills
(Pvt) Ltd
Gharibwal
8 LTO Lahore 144 2,838,196 1 Cement
Limited
D.G Khan
9 Cement
LTO Lahore 145 46,979,181 1
21771 ST Company
Ltd
Jauharabad
10 LTO Lahore 162 13,947,131 1 Sugar Mills
Ltd
Tandlianwal
11 LTO Lahore 163 8,453,461 1 a Sugar
Mills

24
 Noon Sugar
12 LTO Lahore 164 5,804,667 1 Mills
Limited
Kashmir
13 LTO Lahore 165 17,973,820 1 Sugar Mills
Limited
Hunza
14 LTO Lahore 179 36,053,974 1 Sugar Mills
Pvt Ltd
Pattoki
15 LTO Lahore 180 5,108,881 1 Sugar Mills
Limited
Ramzan
16 LTO Lahore 181 10,220,761 1 Sugar Mills
Limited
17 Shakarganj
LTO Lahore 202 3,598,472 1
Limited
Rasool
18 LTO Lahore 203 20,150,884 1 Nawaz
Sugar Mills
Seven Star
19 LTO Lahore 204 2,168,136 1 Sugar Mills
Pvt Ltd
Flying
20 Cement
LTO Lahore 213 210,528,536 1
Company
Ltd
JK Sugar
21 LTO Lahore 214 4,235,301 1 Mills
(Private) Ltd
Popular
22 LTO Lahore 215 4,554,136 1 Sugar Mills
Limited
Haq Bahu
23 LTO Lahore 217 14,957,492 1 Sugar Mills
Pvt Ltd
Etihad
24 LTO Lahore 219 19,422,138 1 Sugar Mills
Limited
Shahtaj
25 LTO Lahore 231 3,320,389 1 Sugar Mills
Limited
Chanar
26 LTO Lahore 232 715,437 1 Sugar Mills
Limited

25
 Thal
27 LTO Lahore 233 41,586,425 1 Industries
Corporation
Baba Farid
28 LTO Lahore 234 21,035,824 1 Sugar Mills
Ltd
Total 920,395,672 28

26
 Annexure-5
(Para-4.2.1)

Loss of revenue due to adjustment of the prior year’s refund without

verification – Rs. 388.994 million

Sr. DP No Office AO Amount in Cases Name of

No No Rs. Taxpayer
Tariq
1 LTO Lahore 80 6,579,749 1 Corporation
Limited
2 Ramzan
LTO Lahore 85 87,190,885 1
Sugar Mills
Etihad
3 LTO Lahore 95 67,673,795 1 Sugar Mills
Limited
Seven Star
4 LTO Lahore 112 12,795,903 1 Sugar Mills
Pvt Ltd
21773 Jauharabad
5 IT LTO Lahore 130 36,123,451 1 Sugar Mills
Limited
Tandlianwa
6 LTO Lahore 135 174,691,321 1 la Sugar
Mills Ltd
7 Khazana
RTO Peshawar 17-IT 3,939,131 1
Sugar Mills
Total 388,994,235 7

27
 Annexure-6
(Para-4.2.1)

Non-imposition of penalty and default surcharge – Rs. 385.248 million

Sr. DP No Office Amount in Name of

No AO No Rs. Cases Taxpayer
Tariq
1 LTO Lahore 77/ST 6,035,780 1 Corporation
Limited
Kashmir
2 LTO Lahore 105/ST 9,107,627 1 Sugar Mills
Limited
Seven Star
3 LTO Lahore 110/ST 7,835,713 1 Sugar Mills
Pvt Ltd
Jauharabad
4 LTO Lahore 129/ST 305,541 1 Sugar Mills
Limited
Tandlianwala
5 LTO Lahore 134/ST 236,636,268 1 Sugar Mills
Limited
6 Shahtaj Sugar
LTO Lahore 153/ST 4,769,522 1
21774/ST Mills Limited
7 Popular Sugar
LTO Lahore 189/ST 549,028 1
Mills Limited
Abdullah
8 LTO Lahore 199/ST 9,573,472 1 Sugar Mills
Limited
9 Chanar Sugar
LTO Lahore 226/ST 39,639,122 1
Mills Limited
10 Chanar Sugar
LTO Lahore 230/ST 62,235,307 1
Mills Limited
Tariq
11 LTO Lahore 78/IT 850,277 1 Corporation
Limited
12 Etihad Sugar
LTO Lahore 92/IT 23, 953,811 1
21789 IT Mills Limited

28
 Haq Bahu
13 LTO Lahore 122/IT 3,101,900 1 sugar mills
(pvt.) Ltd
14 Popular Sugar
LTO Lahore 188/IT 2,702,771 1
Mills Limited
Kashmir
15 LTO Lahore 104/IT 1,905,492 1 Sugar Mills
Limited
Total 385,247,820 15

29
 Annexure-7
(Para-4.2.1)

Less realization of tax due to claim of provisional expenses –

Rs. 364.020 million

Sr. No DP NO Office AO Amount in Cases Name of

No Rs. Taxpayer
Askari
1 LTO
2 19,167,840 1 Cement
Islamabad
Limited
D.G. Khan
2 Cement
LTO Lahore 2 77,244,690 1
Company
Ltd
Fauji
3 LTO Cement
6 3,702,720 1
Islamabad Company
Limited
Best Way
4 LTO
9 33,923,758 1 Cement
Islamabad
Limited
Kohat
5 Cement
LTO Lahore 16 86,268,390 1
Company
Limited
Maple Leaf
6 LTO Lahore 27 42,008,240 1 Cement
Factory Ltd
21775 IT Abdullah
7 LTO Lahore 44 2,355,772 1 Sugar Mills
Limited
Ashraf
8 Sugar
LTO Lahore 51 6,322,130 1
Mills
Limited
Tariq
9 LTO Lahore 72 13,272,256 1 Corporatio
n Limited

30
 Etihad
10 LTO Lahore 90 23,931,171 1 Sugar Mills
Limited
Seven Star
11 LTO Lahore 108 716,960 1 Sugar Mills
Pvt Ltd
Jauharabad
12 LTO Lahore 124 789,654 1 Sugar Mills
Limited
Gharibwal
13 LTO Lahore 137 14,480,860 1 Cement
Limited
Hunza
14 Sugar Mills
LTO Lahore 174 26,042,343 1
(Private)
Ltd
Noon
15 LTO Lahore 191 1,708,970 1 Sugar Mills
Limited
Chanar
16 LTO Lahore 220 3,595,511 1 Sugar Mills
Limited
Dandot
17 Cement
LTO Lahore 160 8,488,419 1
Company
Ltd
Total 364,019,684 17

31
 Annexure-8
(Para-4.2.1)
Non-realization of WWF – Rs. 346.574 million

Sr. DP No Office AO Amount in Name of

No No Rs. Cases Taxpayer
D.G. Khan
1 LTO Lahore 1 1,597,736 1 Cement
Company Ltd
2 Askari Cement
LTO Islamabad 1 2,925,991 1
Limited
Maple Leaf
3 LTO Lahore 26 23,184,813 1 Cement Factory
Limited
4 Ashraf Sugar
LTO Lahore 49 3,341,387 1
Mills Limited
5 Etihad Sugar
LTO Lahore 89 30,108,423 1
Mills Limited
Jauharabad
6 LTO Lahore 123 1,849,944 1 Sugar Mills
Limited
7 Gharibwal
LTO Lahore 136 44,439,904 1
Cement Limited
8 Shahtaj Sugar
21776 IT LTO Lahore 148 403,282 1
Mills Limited
9 Popular Sugar
LTO Lahore 182 4,412,716 1
Mills Limited
10 Noon Sugar
LTO Lahore 190 1,458,605 1
Mills Limited
Flying Cement
11 LTO Lahore 205 1,295,532 1 Company
Limited
12 Best Way
LTO Islamabad 11 231,555,842 1
Cement Limited
Total 346,574,175 12

32
 Annexure-9
(Para-4.2.1)

Non-realization/deduction of withholding tax on royalty – Rs. 305.935

million

Sr. No DP No Office AO Amount in Cases Name of

No Rs. Taxpayer
D.G. Khan
Cement
6 169,981,650 1
1 LTO Lahore Company
Ltd
Kohat
LTO Lahore Cement
18 76,632,118 1
2 Company
Limited
21777
Gharibwal
IT
LTO Lahore 139 47,374,050 1 Cement
3
Limited
Flying
Cement
206 11,947,613 1
4 LTO Lahore Company
Limited
Total 305,935,431 4

33
 Annexure-10
(Para-4.2.1)
Lack of monitoring of withholding agents resulting in non/short-collection
of advance tax –Rs.250.529 million

Sr. DP No Office AO Amount in Name of

No No Rs. Cases Taxpayer
D.G. Khan
1 Cement
7 15,543,655 1
Company
LTO Lahore Ltd
Kohat
2 Cement
19 4,309,955 1
Company
LTO Lahore Limited
Maple Leaf
3 Cement
32 11,538,605 1
Factory
LTO Lahore
Limited
Pioneer
4 LTO Lahore 39 14,662,915 1 Cement
Limited
Chaudhary
5 LTO Lahore 57 9,736,206 1 Sugar Mills
21778/I
T Limited
Abdullah
6 LTO Lahore 61 1,776,145 1 Sugar Mills
Limited
Al-Arabia
7 LTO Lahore 63 7,173,020 1 Sugar Mills
Limited
Ashraf
8 LTO Lahore 66 15,458,739 1 Sugar Mills
Limited
Al-Arabia
9 LTO Lahore 69 18,555,360 1 Sugar Mills
Limited
Tariq
10 LTO Lahore 73 3,060,047 1 Corporation
Limited
11 LTO Lahore 83 22,137,936 1 Ramzan
34
 Sugar Mills
Etihad
12 LTO Lahore 93 7,422,130 1 Sugar Mills
Limited
Tandlianwal
13 a Sugar
LTO Lahore 146 41,812,935 1
Mills
Limited
Kashmir
14 LTO Lahore 98 1,268,059 1 Sugar Mills
Limited
Hunza
15 Sugar Mills
LTO Lahore 175 52,699,292 1
(Private)
Limited
Popular
16 LTO Lahore 184 9,107,060 1 Sugar Mills
Limited
Noon Sugar
17 LTO Lahore 192 3,943,875 1 Mills
Limited
Flying
18 Cement
LTO Lahore 207 7,279,897 1
Company
Limited
Chanar
19 LTO Lahore 222 3,043,050 1 Sugar Mills
Limited
Total 250,528,881 19

35
 Annexure-11
(Para-4.2.1)

Excess claim of withholding tax credit in return resulting in short-

realization of income tax – Rs. 163.350 million
(Rs. in million)
Sr. DP No Tax Office Taxpayer name Withholding Withholding Excess
No tax tax claim
deduction deduction of
claimed in verified from withhol
return ITMS Re- ding
CAP System tax
of FBR
1 21780/ LTO Lahore Abdullah Sugar Mills 3.89 0.04 3.85
2 IT LTO Lahore Haq Bahu Sugar
Mills 10.04 9.42 0.62
3 LTO Lahore Macca Sugar Mills 1.59 0.54 1.05
4 LTO Lahore Hunza Sugar Mills 76.64 75.27 1.37
5 LTO Lahore Ramzan Sugar Mills 61.27 45.33 15.94
6 LTO Lahore Rasool Nawaz Sugar
ills 80.83 67.52 13.31
7 LTO Lahore Shahtaj Sugar Mills 17.49 2.16 15.33
8 LTO Lahore Etihad Sugar Mills 85.22 17.76 67.46
9 LTO Lahore Chaudhary Sugar
Mills 24.15 10.07 14.08
10 LTO Lahore Noon Sugar Mills 50.63 48.77 1.86
11 LTO Lahore Chanar Sugar Mills 8.80 6.13 2.67
12 LTO Lahore Thal Industries
Corporation 34.32 8.51 25.81
Total 454.87 291.52 163.35

36
 Annexure-12
(Para-4.2.1)

Non-realization of sales tax Rs. 136.548 million further tax Rs. 12.089
million aggregating Rs. 148.637 million on sale of scarp and fixed assets
(Amount in Rs)
Sr. DP No Office AO Sales Tax Further tax Total Cases Name Of
No No recoverable Taxpayer
LTO Askari
1 Islamaba 3 17,442,950 - 17,442,950 1 Cement
d Limited
LTO Fauji
2 Islamaba 5 19,616,170 - 19,616,170 1 Cement
d Company
LTO
3 Islamaba 7 16,371,160 - 16,371,160 1 Best Way
d Cement Ltd
Kohat
4 LTO
24 32,145,963 5,672,817 37,818,780 1 Cement
Lahore Company
Maple
5 LTO
30 12,014,302 2,120,171 14,134,473 1 Leaf
Lahore Cement Ltd
6 LTO Chaudhary
59 803,992 - 803,992 1
Lahore Sugar Mills
Fatima
7 LTO
67 3,570,000 - 3,570,000 1 Sugar Mills
Lahore Ltd
8 LTO Ramzan
82 36,492 - 36,492 1
Lahore Sugar Mills
9 LTO Shakarganj
167 2,287,010 - 2,287,010 1
Lahore Limited
21781/ST LTO
10 172 5,840,247 - 5,840,247 1 JDW Sugar
Lahore Mills Ltd
Chanar
11 LTO
225 2,074,000 - 2,074,000 1 Sugar Mills
Lahore Ltd
Shahtaj
12 LTO
152 228,990 40,410 269,400 1 Sugar Mills
Lahore Ltd
Noon
13 LTO
197 372,300 65,700 438,000 1 Sugar Mills
Lahore Ltd
Flying
14 LTO
212 23,744,247 4,190,161 27,934,408 1 Cement
Lahore Company
Total 136,547,823 12,089,259 148,637,082 14

37
 Annexure-13
(Para-4.2.1)

Undervaluation of sugar resulting in short-realization of sales tax-

Rs. 80.061 million

Period DP No Sales value in Quantity Rate Rate fixed Rate Value Sales tax
annex-J (Rs) supplied applied by FBR /kg suppressed (Rs)
(M Tons) /kg(Rs) (Rs) /kg Short (Rs)
since applie
16.08.2021 d (Rs)

1 2 3 4(2/3/1000) 5 6(5-4) 7(6*1000*3) 8(7*17%)

Seven Star Sugar Mills (Private)Limited bearing NTN-3004943

21-Dec 96,459,619 7,635.20 12.63 72.22 59.59 77,342,269

454,981,568
22-Apr 216,151,574 3,070.90 70.39 72.22 1.83 956,900
5,619,747
22-May 21782/ 113,271,023 1,577.50 71.80 72.22 0.42 111,525
662,550
ST
22-Jun 98,816,262.00 1,410.10 70.08 72.22 2.14 513,597
3,017,614

Chanar Sugar Mills Limited bearing NTN-0225970

0 0
21782/
21-DEC ST 643,793,765 9,006.00 71.48 72.22 0.74 1,125,324
6,664,440
TOTAL 470,945,919 80,060,806

38
 Annexure-14
(Para-4.2.1)

Non short- realization/ deduction of withholding tax on commission–

Rs. 60.500 million

Sr. DP No Office AO No Amount in Cases Name of

No Rs. Taxpayer
D.G.
Khan
1 LTO Lahore 10 8,405,027 1 Cement
Company
Ltd
Kohat
2 Cement
LTO Lahore 21 42,904,626 1
Company
Limited
Kashmir
3 Sugar
21783/I LTO Lahore 102 737,130 1
Mills
T
Limited
Gharibwal
4 LTO Lahore 141 8,138,760 1 Cement
Limited
Noon
5 Sugar
LTO Lahore 198 314,994 1
Mills
Limited
Total 60,500,537 5

39
 Annexure-15
(Para-4.2.1)

Non-realization/ deduction of withholding tax on dividend–

Rs. 48.838 million

Sr. No DP No Office AO No Amount in Cases Name of

Rs. Taxpayer

1 LTO 3 34,904,250 1 D.G. Khan Cement

Lahore Company Limited
2 LTO 4 235,800 1 Fauji Cement
Islamabad Company Limited
3 21784/IT LTO 17 272,519 1 Kohat Cement
Lahore Company Limited
4 LTO 28 4,979,750 1 Maple Leaf
Lahore Cement Factory
Ltd
5 LTO 38 1,142,000 1 Pioneer Cement
Lahore Limited
6 LTO 200 7,303,800 1 Noon Sugar Mills
Lahore Limited
Total 48,838,119 6

40
 Annexure-16
(Para-4.2.1)
Loss of revenue due to non-taxation of income from other sources-
Rs. 31.208 million

Sr. No DP No Office AO Amount in Cases Name Of

No Rs. Taxpayer
D.G. Khan
1 LTO
4 4,471,966 1 Cement
Lahore
Company Ltd
2 LTO Askari Cement
8 4,969,170 1
Islamabad Limited

3 RTO
16 6,141,910 1 Chashma sugar
Peshawar
mill pvt. Ltd
21785/IT
4 LTO
54 916,427 1 Ashraf Sugar
Lahore
Mills Limited
5 LTO Gharibwal
138 14,708,510 1
Lahore Cement Limited
Total
31,207,983 5

41
 Annexure-17
(Para-4.2.1)

Non-realization of further tax on scrap sale – Rs. 11.450 million

Sr. DP No Office AO Amount in Cases Name of

No No Rs. Taxpayer
Kohat Cement
1 LTO Lahore 23 297,096 1 Company
Limited
D.G. Khan
2 LTO Lahore 25 10,864,165 1 Cement
Company Ltd
Maple Leaf
3 21786 ST Cement
LTO Lahore 29 201,450 1
Factory
Limited
Gharibwal
4 LTO Lahore 143 87,831 1 Cement
Limited
Total 11,450,542 4

42
 Annexure-18
(Para-4.2.1)
Loss of revenue due to incorrect claim of initial allowance –
Rs. 11.215 million

Sr. No DP No Office AO No Amount in Rs. Cases Name of Taxpayer

1 LTO Lahore 5 4,515,545 1 D.G. Khan Cement

Company Limited

2 LTO Islamabad 10 852,570 1 Best Way Cement

Limited
21787 –
3 IT RTO Peshawar 15 468,712 1 Chashma sugar mill
pvt. Ltd

4 LTO Lahore 22 4,038,299 1 Kohat Cement

Company Limited

5 LTO Lahore 31 201,282 1 Maple Leaf Cement

Factory Limited

LTO Lahore 79 25,455 1 Tariq Corporation

Limited

7 LTO Lahore 101 117,415 1 Kashmir Sugar Mills

Limited

8 LTO Lahore 150 151,905 1 Shahtaj Sugar Mills

Limited

9 LTO Lahore 169 749,560 1 Jdw Sugar Mills

Limited

10 LTO Lahore 196 94,326 1 Noon Sugar Mills

Limited
Total 11,215,069 10

43
 Annexure-19
(Para-4.2.1)

Non-recovery of arrears of tax Rs. 3,782.872 million

AO Amount in
Sr. No DP No Office Cases Name of Taxpayer
No Rs.
Abdullah Sugar Mills
1 LTO Lahore 47/ST 123,561,465 1
Limited
Ashraf Sugar Mills
2 LTO Lahore 53/ST 169,309,426 1
Limited
Tariq Corporation
3 LTO Lahore 75/ST 183,809,141 1
Limited
Tandlianwala Sugar
4 LTO Lahore 133/ST 6,260,327 1
Mills Ltd
JDW Sugar Mills
5 LTO Lahore 171/ST 358,115,490 1
Limited
Hunza Sugar Mills
6 LTO Lahore 178/ST 390,202,670 1
(Private) Ltd
Popular Sugar Mills
7 LTO Lahore 187/ST 40,597,266 1
Limited
Noon Sugar Mills
8 LTO Lahore 194/ST 80,492,000 1
Limited

21766 Maple Leaf Cement

9 LTO Lahore 34/ST 139,585,738 1
ST/FED Factory Ltd

Pioneer Cement
10 LTO Lahore 41/ST 795,669,120 1
Limited
Dandot Cement
11 LTO Lahore 159/ST 163,295 1
Company Ltd
D.G. Khan Cement
12 LTO Lahore 9/IT 11,293,000 1
Company Ltd
Kohat Cement
13 LTO Lahore 20/IT 13,690,463 1
Company Ltd

Maple Leaf Cement

14 LTO Lahore 33/IT 270,331,000 1
Factory Ltd

Pioneer Cement
15 LTO Lahore 40/IT 153,007,000 1
Limited
Ashraf Sugar Mills
16 LTO Lahore 52/IT 4,662,195 1
Limited
Tariq Corporation
17 LTO Lahore 74/IT 353,608 1
Limited
Etihad Sugar Mills
18 LTO Lahore 94/IT 362,192 1
Limited
44
 Kashmir Sugar Mills
19 LTO Lahore 99/IT 5,082,344 1
Limited
Seven Star Sugar Mills
20 21770 IT LTO Lahore 109/IT 1,456,285 1
Pvt Ltd
Jauharabad Sugar
21 LTO Lahore 127/IT 118,024 1
Mills Limited
Tandlianwala Sugar
22 LTO Lahore 132/IT 68,606,613 1
Mills Ltd
Gharibwal Cement
23 LTO Lahore 140/IT 489,298,000 1
Limited
RTO Shahtaj Sugar Mills
24 149/IT 440,000 1
Peshawar Limited
Dandot Cement
25 LTO Lahore 158/IT 2,183,618 1
Company Ltd
JDW Sugar Mills
26 LTO Lahore 170/IT 44,380,178 1
Limited
Hunza Sugar Mills Pvt
27 LTO Lahore 176/IT 2,999,205 1
Ltd
Popular Sugar Mills
28 LTO Lahore 185/IT 2,737,209 1
Limited
Noon Sugar Mills
29 LTO Lahore 193/IT 554,000 1
Limited
Flying Cement
30 LTO Lahore 209/IT 379,942,770 1
Company Ltd
Chanar Sugar Mills
31 LTO Lahore 223/IT 21,306 1
Limited
Abdullah Sugar Mills
32 LTO Lahore 45/IT 43,587,077 1
Limited
Total 3,782,872,025 32

45
 Annexure-20
(Para-4.2.1)
Irregular supply of goods under DTRE resulting in potential loss of sales tax

Sr. DP No Office AO Amount in Cases Name Of

No No Rs. Taxpayer
Macca Sugar
1 LTO
88 26,871,403 1 Mills (Pvt)
Lahore
21779 Limited
/ST
2 LTO Kashmir Sugar
106 62,475,009 1
Lahore Mills Limited

3 LTO
229 80,175,246 1 Chanar Sugar
Lahore
Mills Limited
Total
169,521,658 3

46