Massive Withholding Tax Evasion Scheme Exposed in Punjab’s Property Registration Sector

Tax office of Federal Board of Revenue conducts an electronic audit of property registrars in Punjab

In a recent development, an electronic audit conducted by a tax office of the Federal Board of Revenue (FBR) in Sargodha, Punjab has exposed a significant tax evasion scheme within the property registrar sector.

The audit revealed that a network of property registrars, revenue officers, and lawyers in Punjab were involved in withholding taxes evasion amounting to billions of rupees collected on property transactions but never deposited in the national treasury.

This marks the FBR’s first-ever electronic tax audit of immovable properties, exposing a massive revenue loss orchestrated by sub-registrars of properties. The Regional Tax Office (RTO) Sargodha has successfully recovered over Rs 388 million from the defaulters, showcasing the scale of the fraud. The digital audit uncovered an organized fraud involving the use of fake challans in collusion with buyers and sellers of properties.

The withholding tax collection from sales of immovable properties recorded an extraordinary growth of 340.5 percent during the fiscal year 2022-23 compared to the previous year. This surge in collection highlights the significance of withholding tax on property transactions as a major contributor to the FBR’s direct taxes collection.

Following the success in Sargodha, sources suggest that adopting similar electronic audit methodologies in other Regional Tax Offices (RTOs) could lead to the detection of similar revenue leakages, potentially surpassing revenue collection targets for the remaining months of 2023-24.

The modus operandi of the fraudulent scheme involved sub-registrars of properties collecting withholding taxes on transactions but failing to deposit them in the national exchequer. The audit also revealed that the withholding tax rates for filers and non-filers were not appropriately applied, with all 17 sub-registrars’ offices implicated in retaining deducted withholding taxes on immovable properties.

In response to these findings, the RTO Sargodha has initiated recovery proceedings and prosecution against the involved individuals under the enforcement provisions of the Income Tax Ordinance 2001. Recovery notices have been issued to registrars and taxpayers under relevant sections of the ordinance.

This revelation underscores the need for vigilant enforcement and electronic audits to curb organized tax fraud in the real estate sector. If similar schemes are detected in other RTOs, it could significantly boost the FBR’s overall revenue collection for the fiscal year.

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