Sales tax refund claims mount to Rs110bln in July-Jan

KARACHI: Sales tax refunds claims from businesses mounted to Rs110 billion during the first seven months of the current fiscal year of 2016/17 – almost equal to the last fiscal year – despite zero-rating facility for five export sectors, The News learnt on Monday. 

Sales tax refunds of up to Rs22 billion were settled in August 2016, followed by another settlement of Rs21 billion for the period between June 1, 2015 and June 30, 2016 in November 2016.

“It has been three months now since the last payments against refund claims were made, whereas such claims have been escalating every day, triggering anxiety among many taxpayers,” Shamim Firpo, president of the Karachi Chamber of Commerce and Industry said. “Small exporters are facing severe liquidity crunch due to the stuck sales tax refunds.”

Firpo said refund claims of the last seven months of the current fiscal year have not been cleared. He advised the tax authorities to devise an automated system to ensure release of pending refunds on monthly or quarterly basis, which would enable industrialists and exporters to efficiently devise their future business expansion strategies.

The government allowed zero sales tax rate for five export sectors on the condition of ‘no payment – no refund’.  A delegation of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) will hold a meeting with the chairman of the Federal Board of Revenue (FBR) next week to resolve the issue of refund claims and fake invoices.

Shakil Dhingra, who heads FPCCI standing committee on FBR Affairs, said the FBR and business community will jointly remove the menace of flying or fake invoices to plug billions of rupees leakages in sales tax. “The flying invoices are draining around Rs100 billion of national exchequer.”

Registered taxpayers use fake or flying invoices to claim undue refunds from the tax department by showing excessive use of raw materials. The flying invoices have become major problem for both the tax machinery and the industry.   The officials in the FBR also confirmed that the revenue authorities failed to stop this.

Last year, the FBR introduced sales tax real-time invoice verification (STRIVe) to stop false claims of input tax and refunds. “The STRIVe has stopped the bogus refunds and input claims but it faces problems in detecting flying invoices,” said a FBR official on condition of anonymity. The official said introduction of harmonised system codes in the invoice would help in preventing flying invoices. Dhingra said the elimination of two percent additional sales tax on supply to unregistered person would resolve the issue.