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ISLAMABAD (May 10 2008): An investigation by the Federal Board of Revenue (FBR) has confirmed that the tax officials operating Sales Tax Automated Refund Repository Computer System (Starr) in Islamabad and Lahore had tampered with the record to issue illegal refunds of billions of rupees to the exporters.

Sources told Business Recorder on Friday that the Starr managers were primarily responsible for diverting the system merely to issue huge amounts of illegal refunds. The seriousness of the issue is evident from the fact that the next board-in-council meeting would finalise action against the sales tax officials, who were operating the Starr system.

An FBR report on Starr frauds has disclosed some astonishing facts about the modus operandi of the sales tax officials to by-pass the checks in the system.

The investigation was being conducted to check the involvement of Starr officials in mega-refund scams, particularly in 37 tax fraud cases referred by the National Accountability Bureau (NAB) to the FBR.

According to sources, a large chunk of money was fraudulently withdrawn as sales tax refund at the time when the Starr was fully operational. In most of the cases, the fraud was committed in connivance with the Starr managers in Lahore and the FBR staff. The modus operandi was to flash incorrect particulars of the suppliers on the Starr window at the time of refund sanctioning. This technique was used to show that the supplies had actually taken place even in non-existent cases. The refunds were generated on the basis of wrong data of suppliers using the Starr system.

The report clearly pointed towards discretionary powers, delegated to the sales tax officials, who altered the system on their own. It also reflected that nobody was keeping any supervisory checks on the officials using the system. It has been categorically declared that the blessings of the Starr operators actually resulted in biggest tax fraud scams in Pakistan.

It seemed that the technical working of the Starr was known to a selected sales tax officials, who widely misused the system. Moreover, absence of constant check on the Starr further empowered the officials to continue to issue illegal sales tax refunds to the so-called exporters.

Sources said that the board had now decided to conduct thorough inquiry of all these cases, including the Starr managers, who remained posted at the FBR and Lahore during the tenure when scams came to light. If inquiry confirms involvement of senior sales tax officials, who used the Starr to bypass the system, the responsibility for issuance of sales tax refunds would be solely remained with the Starr operators.

Tax officials have always blamed the exporters for misusing the Starr and submitting wrong documents for obtaining bogus refunds. It was also alleged that the unscrupulous exporters file claims without making actual exports. It was claimed that the exporters fraudulently claimed sales tax refund on forged documents.

Contrary to this, the departmental inquiry has directly blamed the Starr operators for widely misusing the system for issuance of refunds. It has been recommended to conduct thorough inquiry of the officials, who used to operate and supervise the Starr during 2003-2005 (period of frauds).

In two cases, sales tax refund of Rs 217.43 million was issued in Karachi a few years ago and the Directorate General Inspection had referred the cases to the Regional Tax Office (RTO), Karachi. Six cases, involving over Rs 1.2 billion, are in the process of adjudication. In total, a huge amount of over Rs 2.2 billion was claimed as illegal sales tax refund on the fake documents by 37 companies of Karachi during the period of fraud.

Copyright Business Recorder, 2008