Cantonment Boards: AGP flags ‘massive irregularities’

ISLAMABAD: In its audit report for 2024-25, the Auditor General of Pakistan pinpointed massive irregularities of billions of rupees during the audit of Cantonment Boards for the financial year 2023-24.

AGP observed that Cantonment Boards’ dues amounting to Rs 4.43 billion were outstanding on account of premium charges, annual ground rent, development charges, composition fee, lease rent, hoarding/ sky charges, rent, water charges, and conservancy. The Audit report held that non-recovery of Cantonment dues resulted in a loss to the Cantonment Board fund.

According to the AGP report, the matter was reported to the management in July and August 2024. The management replied that efforts were being made for the recovery of the outstanding amount, and the outcome will be shared with the audit authorities for verification.

The DAC meeting was held on 13th-14th November and 20th December, 2024. The forum directed the management to reconcile the amount with the audit and pursue recovery accordingly, along with its verification within six months. In another case, the forum directed the management that the matter may be pursued by the ML&C department, and an MEO representative will attend the next DAC meeting until then, the PDP would remain pending. In subjudice cases, the forum directed the management to pursue the court cases.

In the audit report, it was also observed that the Heritage Foundation was required to pay an amount Rs 6.3billion to the Cantonment Boards on account of tax and hoarding/ advertisement charges. The amount was outstanding at the end of the Foundation as per the Cantonment Boards management’s letter dated 15.03.2023.Audit held that non-recovery of dues from the foundation resulted in a loss to the Cantonment Board Fund.

Non-recovery of the huge amount from the Foundation deprived the Cantonment Boards management of funds of its legitimate dues to be spent on the provision of services and amenities to the cantonment residents.

The matter was reported to the management in August 2023. It was replied that the issue had already been raised by the audit. The reply was not accepted as the outstanding dues were required to be recovered and used for the provision and improvement of services in the cantonment limits.

During the audit of a Cantonment Board for FY24, it was observed that 282 shops/ offices and 11 independent prominent business undertakings located at the sports stadium and 21 marriage halls at another location were run and managed by the concerned authorities. However, property tax was not assessed by the Cantonment Board management even though the shops and offices were rented for commercial purposes. The audit team calculated an approx. amount of Rs. 377.4 million the basis of area utilised and the prevailing revenue (DC) rates for FYs 23 and FY24.

The Audit held that non-assessment and non-realisation of property tax from the commercial units in the sports stadium resulted in a loss of revenue to the Cantonment Board fund.

The matter was reported to the management in July and August 2024. It was replied that in case of commercial properties erected on A-I land the question of property tax did not arise.

Reply was not accepted as, according to the Ministry of Defence letter dated 3 January 2022, the chairman of the DAC had directed to take all necessary action regarding the recovery of property tax from all the commercial activities running on A-I land. Moreover, non-assessment of property tax at the stadium was not justified and was a loss to the Cantonment Board management’s earnings.

During the audit of various Cantonment Boards for the financial year 2023-24, it was observed that withheld taxes amounting to Rs 111.4 million were not deposited with the Federal Board of Revenue (FBR).

Audit held that non-remittance of withheld taxes to the FBR resulted in a loss to government revenues. The matter was reported to the management in July and August 2024. It was replied that the objected amount of Rs. 24.20 million on account of Income Tax deducted from the Frontier Works Organisation (FWO) is being reconciled with FBR, and the said amount will be deposited into the treasury. In another case, it was replied that Rs 30.7 million was deposited, and the remaining shall be remitted to FBR on improvement of the financial position of the Cantonment Board management.

During the audit of Cantonment Boards for the financial year 2021-22 to 2023-24, it was observed that Sales Tax on Services amounting to Rs. 174.513 million was not deducted from the suppliers and contractors.

Audit held that non-deduction of Provincial Sales Tax on Services resulted in a loss to provincial government revenues.

The matter was reported to the management in July and August 2024. The concerned authorities replied that there was no provision in the Cantonments Act, 1924, or Pakistan Cantonments Account Code 1955 with regard to the deduction of Sales Tax on Services. Further, it was replied that functions and regulatory duties performed by the Cantonment Boards are within the exclusive sphere of the Federal Legislature; thereby they are exempt from provincial taxes.

During the audit of various Cantonment Boards for the financial year 2023-24, it was observed that an advance tax amounting to 55.333 million was not collected from the successful bidders. Audit held that non-collection of advance tax at the time of auction was an undue favour to the successful bidders, resulting in a loss to government revenues.

The matter was reported to the management in July and August 2024. It was replied that the contractors would pay the advance income tax directly to the FBR.

During audit of the cantonment boards for the financial year 2023-24, it was observed that payment of last interim payment certificate (IPC) was made to the contractor and Income Tax on civil works at the rate of 8 percent amounting to Rs. 2,108,801 (Rs. 26,360,018 x 8 percent) was not deducted from the bill of the contractor on the plea of exemption certificate granted by the FBR under Section-49 of the Income Tax Ordinance, 2001.

The Audit held that the FWO was earning profits from a range of activities and contracts as a contractor firm and was liable to pay Income Tax on the income earned during the year. Non-recovery of Income Tax from the FWO resulted in a loss to the government exchequer.

The DAC meeting was held on 20th December 2024. The forum directed the management to approach the FWO regarding the withdrawal of exemption from income tax and recover the amount and deposit the amount in the treasury.

During the audit of a Cantonment Board for the financial year 2023-24, it was observed from the TIP tax amounting to Rs. 35.7 million was lying outstanding against a trade centre on account of the transfer of leasehold rights of 83 marlas (survey No.508) for the last 9 years, which was not justified.

During the audit of certain Cantonment Boards for the Financial Year 2023-24, it was observed that an amount of Rs 6.85 billion was lying outstanding against different parties/ properties on account of house tax, conservancy tax, and water charges in violation of the rules.