An audit has uncovered Rs. 41.78 billion in inadmissible sales tax input tax credits claimed by businesses using invoices issued by suspended and blacklisted taxpayers, exposing significant weaknesses in enforcement by the Federal Board of Revenue (FBR).

According to the Auditor General of Pakistan’s latest report, 159 registered taxpayers across 12 FBR field formations claimed input tax credits on invoices issued by taxpayers whose sales tax registrations had already been suspended or blacklisted. Such claims are prohibited under Section 21 of the Sales Tax Act, 1990.

The audit found that the FBR did not take timely legal action to recover the disputed amounts or prevent the claims, allowing Rs. 41.785 billion in inadmissible input tax adjustments to remain on record.

In its response, the FBR said recovery proceedings involving Rs. 568.08 million are in progress. The tax authority added that show-cause notices covering Rs. 6.93 billion have been issued, legal proceedings have been initiated in cases worth Rs. 21.67 billion, while claims totaling Rs. 12.61 billion are still under examination.

The Departmental Accounts Committee (DAC) instructed the FBR to accelerate recoveries, complete adjudication and legal proceedings, and submit detailed reports on cases that remain under scrutiny. However, the Auditor General noted that no meaningful progress had been reported by the time the audit was finalized.

The audit report recommended expediting recoveries, holding responsible officials accountable for lapses, and strengthening automated controls to prevent taxpayers from claiming input tax credits on invoices issued by suspended or blacklisted entities. It also pointed out that similar irregularities had been highlighted in previous audit reports, indicating that the issue remains unresolved despite repeated observations.