The Federal Tax Ombudsman (FTO) has strictly directed the Director General of Intelligence and Investigation (I&I), Inland Revenue, to identify and apprehend the cybercriminals who used IP addresses to introduce fake supplies into the supply chain. The FTO also instructed the authorities to trace the original subscriber or criminal using VPNs.
This significant tax fraud came to light when the complainant attempted to file his sales tax return for April 2025. It was discovered that cybercriminals had illegally misused his password ID, fraudulently updated the form on April 29, 2025, and filed the sales tax return for the tax period of April 2025 on May 1, 2025.
According to another FTO order on cybercrime, the illegal misuse of the password ID and the fraudulent filing of the sales tax return introduced fake supplies worth Rs. 133.125 million through Annexure-C, with a sales tax impact of Rs. 23.962 million. This fraudulent activity caused multiple issues in filing sales tax returns for subsequent tax periods and was deemed an act of maladministration.
The FTO has directed the Federal Board of Revenue (FBR) to instruct Chief Commissioners-IR, RTO Quetta, to initiate legal proceedings for the conviction of those involved in this tax fraud. The Director General of I&I has been tasked with identifying the cybercriminals, whether they are within or outside the company, who used the IP addresses to introduce fake supplies into the supply chain. This includes building the capacity to trace the original subscriber or criminal using VPNs.
The complainant, a 68-year-old senior citizen who had been registered for sales tax since August 5, 2008, as a commercial importer, uncovered the fraud while attempting to file his sales tax return for April 2025. Cybercriminals had fraudulently updated the form and filed the return, introducing fake supplies worth Rs. 133.125 million through Annexure-C, with a GST impact of Rs. 23.962 million.
The prompt action by the Commissioner of RTO Quetta in protecting government revenue in the supply chain has been highly commendable. However, the concerned Commissioner is required to take further action, including the registration of an FIR, as per the Standard Operating Procedures (SOPs) outlined in Sales Tax General Order No. 12 of 2023 for cases involving fake or flying invoices.
The beneficiary of these fake transactions, M/s Rafi Enterprises, a taxpayer of RTO Quetta, knowingly and deliberately purchased fake invoices without any actual physical movement or transaction of goods and without making payments as prescribed under Section 73 of the Sales Tax Act. The beneficiary was fully aware of the fraudulent nature of these invoices and acted with the intent to evade sales tax.
The current lax enforcement regime has emboldened unscrupulous registered persons to engage in the lucrative business of using fake or flying invoices without fear of being caught.
The foundation of sales tax law is built on the principle of self-assessment, where taxpayers are trusted to submit true and accurate declarations. To prevent the misuse of this trust, the law includes a penal and prosecution mechanism.
Therefore, after establishing the case of tax fraud against all ultimate beneficiaries involved in using fake or flying invoices, the Department must not stop short of registering an FIR against the perpetrators. The Department should also vigorously pursue these cases during the prosecution stage, the FTO order emphasized.