The Federal Tax Ombudsman (FTO) has taken a strong stance against a major Rs. 133 Million Fake Supply Fraud, directing the Director General of Intelligence and Investigation (I&I), Inland Revenue, to identify and apprehend the cybercriminals behind the scheme. This high-profile case has exposed how tax evaders used IP addresses and VPNs to introduce fake supplies into Pakistan’s tax system, causing a significant financial loss to the government.
How the Rs. 133 Million Fake Supply Fraud Was Discovered
The fraud came to light in April 2025 when a 68-year-old senior citizen, registered for sales tax since 2008 as a commercial importer, attempted to file his sales tax return. To his shock, he discovered that cybercriminals had illegally accessed his account using his password ID, updated his tax return form on April 29, 2025, and filed it on May 1, 2025.
The fraudulent filing introduced fake supplies worth Rs. 133.125 million through Annexure-C, resulting in a sales tax impact of Rs. 23.962 million. This manipulation not only disrupted the taxpayer’s future filings but was also classified by the FTO as a serious act of maladministration.
The Modus Operandi Behind the Fraud
According to the FTO’s findings, the perpetrators exploited weaknesses in the sales tax return filing process. They used IP addresses—often masked through VPNs—to gain unauthorized access to taxpayer credentials. Once inside the system, they created fake supplies and issued invoices without any actual movement of goods or exchange of payment.
One of the key beneficiaries identified was M/s Rafi Enterprises, a taxpayer registered with RTO Quetta. Investigations revealed that the company knowingly purchased fake invoices to evade sales tax, violating Section 73 of the Sales Tax Act.
FTO’s Directives and Legal Action
The FTO has ordered the Federal Board of Revenue (FBR) to:
- Instruct Chief Commissioners-IR, RTO Quetta, to begin legal proceedings against those involved in the Rs. 133 Million Fake Supply Fraud.
- Empower the Director General of I&I to identify cybercriminals—both internal and external—who used IP addresses to manipulate the system.
- Enhance capabilities to trace individuals hiding behind VPNs.
The order also highlighted the importance of filing FIRs against perpetrators, as per Sales Tax General Order No. 12 of 2023, in cases involving fake or flying invoices.
Why This Fraud is a Serious Threat to Pakistan’s Tax System
The Rs. 133 Million Fake Supply Fraud underscores vulnerabilities in Pakistan’s tax system, particularly the principle of self-assessment. Sales tax law relies heavily on taxpayers providing truthful declarations, with the understanding that any misuse will trigger penalties and legal action.
However, a lax enforcement environment has emboldened some registered businesses to engage in fraudulent invoicing, knowing that the likelihood of being caught is low. This creates a dangerous precedent that could cost billions in lost revenue if not addressed.
Recent FBR data reveals that fake and flying invoices have been a persistent issue, costing the government an estimated Rs. 50–70 billion annually in lost GST revenue.
Commendable Steps and Remaining Gaps
The FTO praised the prompt action of the Commissioner at RTO Quetta, who worked quickly to safeguard government revenue once the fraud was detected. However, the Ombudsman emphasized that simply blocking the fraudulent transactions is not enough. The law requires FIR registration and active prosecution to ensure accountability.
The report also pointed out the need for stronger cybersecurity measures within the FBR’s digital infrastructure. Taxpayer IDs and passwords must be better protected, and suspicious login attempts—especially from foreign IP addresses—should trigger immediate alerts.
Broader Implications for Cybercrime in Pakistan
This case is not an isolated incident. Cybercrime targeting financial systems has been on the rise in Pakistan, with the Federal Investigation Agency (FIA) reporting a 40% increase in cyber fraud cases in 2024 compared to the previous year.
The use of VPNs has made it increasingly difficult for investigators to pinpoint the exact location of criminals. That’s why the FTO’s call for building the capacity to trace VPN users is a critical step forward.
The Road Ahead
To prevent future cases like the Rs. 133 Million Fake Supply Fraud, experts recommend a multi-pronged approach:
- Stricter Access Controls – Multi-factor authentication for all taxpayer logins.
- Real-time Monitoring – Immediate alerts for unusual login activity.
- Harsher Penalties – Swift prosecution and conviction of tax fraudsters.
- Public Awareness – Educating taxpayers on how to protect their credentials.
If these measures are implemented effectively, Pakistan could significantly reduce the incidence of fake invoicing and other forms of tax fraud, ultimately safeguarding billions in public revenue.
The Rs. 133 Million Fake Supply Fraud is a wake-up call for Pakistan’s tax authorities. While the FTO’s swift intervention is commendable, lasting change will require systemic reforms, advanced cybersecurity tools, and zero tolerance for offenders. The upcoming months will be critical in determining whether this case becomes a turning point in the fight against tax fraud—or just another addition to a long list of unresolved financial crimes.
