Pakistan’s tax revenue collection is facing a growing threat from sophisticated cyber fraud, compelling the Federal Tax Ombudsman (FTO) to take decisive action. In a move with significant implications for tax administration, the FTO has directed the Federal Board of Revenue (FBR) to aggressively pursue internet protocol (IP) tracking, even accessing data older than one year.
Expanding Investigative Powers to Combat Digital Tax Evasion:
The FTO’s directive explicitly instructs the Member (Operations)/Director General IT-DT at the FBR to launch a comprehensive inquiry into a specific case of fraudulent online registration. This investigation, triggered by a complaint under Section 181, seeks not only to rectify the immediate issue but also to establish robust preventative measures against future tax fraud. The core of this enhanced investigative approach lies in the utilization of IP tracking – a critical tool to penetrate the anonymity of cybercriminals exploiting the digital tax infrastructure. By mandating access to historical IP data, the FTO is equipping the FBR with the necessary means to trace, identify, and prosecute perpetrators of digital tax crimes, sending a strong deterrent signal to those seeking to defraud the national treasury.
CNIC Cyber Fraud Exposes Vulnerabilities in Tax Administration:
A recent case unearthed by the FTO starkly illustrates the vulnerability of the tax system to cyber exploitation. Cybercriminals, leveraging stolen or misused Computerized National Identity Cards (CNICs), perpetrated a significant tax fraud by filing bogus income tax returns. In one alarming instance, the CNIC of a junior clerk in Sindh was weaponized to fabricate fraudulent tax filings, resulting in an entirely fictitious tax liability based on non-existent property income. This incident underscores a critical weakness in the tax registration and filing process, revealing how easily the system can be manipulated for illicit financial gain and highlighting potential revenue losses stemming from such fraudulent activities.
Systemic Failures Amplify Taxpayer Risk:
The FTO report further indicts Pakistan Revenue Automation Limited (PRAL), the technology backbone of the FBR, for failing to provide crucial data points vital for fraud detection. The absence of readily available cell phone numbers and email addresses linked to fraudulent registrations significantly hampered the ability to swiftly identify and apprehend the cybercriminals involved. This systemic failure within the tax administration infrastructure not only emboldens fraudsters but also places honest taxpayers at risk of becoming collateral damage in these digital tax schemes.
Devastating Impact on an Honest Taxpayer:
The human cost of these cyber tax frauds is starkly illustrated by the plight of the junior clerk. Illegally registered for income tax without his knowledge in 2019, he became the victim of fabricated tax returns for prior years (2014 and 2015). Despite earning a meager monthly salary far below the taxable threshold, he was falsely declared to have earned millions, leading to a staggering and unlawful tax liability of Rs 63.03 million. The tax department, acting on these fraudulent filings, aggressively pursued recovery, attaching the clerk’s bank accounts, including his salary account. This aggressive, yet misplaced, tax enforcement action effectively crippled the clerk’s ability to provide for his family, demonstrating the potentially devastating consequences of cyber fraud on ordinary citizens and the urgent need for a more robust and secure tax system.
FTO’s Prescriptive Measures to Restore Tax System Integrity:
To rectify this egregious situation and prevent future occurrences, the FTO has issued specific directives aimed at restoring integrity to the tax system and safeguarding taxpayers:
- Immediate Relief from Unjust Tax Burden: The Commissioner-IR, Zone-I, RTO-II Karachi is mandated to immediately detach the complainant’s salary account. This urgent action aims to alleviate the immediate financial hardship imposed by the fraudulent tax liability and ensure that honest taxpayers are not penalized for the failings of the digital tax system.
- Targeted Investigation to Unmask Cyber Criminals: The Director General, Intelligence & Investigation (I&I) Inland Revenue (IR) is tasked with initiating a fact-finding inquiry, leveraging IP address and cell number tracking to identify and apprehend the cybercriminals behind the fraudulent registration. This directive underscores the shift towards proactive cybercrime investigation within the tax administration, utilizing digital forensics to dismantle tax fraud networks.
- Halting Unjustified Revenue Recovery: The Commissioner, Zone-I, RTO-II Karachi is explicitly instructed to suspend all recovery proceedings against the complainant pending the outcome of the DG I&I’s investigation. Furthermore, if the investigation exonerates the complainant, the ex-parte assessment order of August 7, 2024, must be revisited under Section 122A. This emphasizes the FTO’s commitment to fair tax administration and preventing the unjust enforcement of tax liabilities stemming from cyber fraud.
Towards a Cyber-Resilient Tax Administration:
The FTO’s directives represent a critical step towards strengthening Pakistan’s tax administration in the face of evolving cyber threats. By mandating IP tracking and demanding accountability for systemic vulnerabilities, the FTO is signaling a decisive shift towards a more cyber-resilient tax system.
