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June 3, 2015

FBR’s refund system bleeding both ways-I

National

June 3, 2015

Decline in export is hitting hard exporters that will result in gradual closures of mills and intensify lay-offs. Other countries in region, exporters lament, offer new incentives but our problems are further exacerbated due to withheld refunds of sales tax and income tax as well as of custom duty draw-back.
The associations of exporters have publicly expressed concerns over the so-called FBR contention that approval from finance ministry is required for release of funds. “Is it some kind of development project for which the funds are to be approved,” they ask.
Refund is repayment of taxes, they argue, already collected on goods used for export. FBR holds that refund in quite a few cases are not payable as noted in the letter of Intent signed with IMF and World Bank in March this year. “The CREST verification system has allowed us to reject false claims worth about Rs10 billion in the first half of FY 2014/15…….”
Federal Tax Ombudsman office too is seized of refund issues. It has pointed out 90 percent complaints it handles is on account of delays in refund. Crying foul in refund payment is thus a call by all the stakeholders.
The payment of refund is one area for which FBR takes a lot of flake as it affects exporters’ liquidity profile. It will thus be relevant to critically examine the following points: 1) how refund accrues; 2) what is procedures for payment of refunds; 3) what are the bottlenecks and lastly how the whole process can be made transparent and expeditious.
Refunds are integral part of general sales tax as export takes place at zero-rate and taxes paid on goods used for exports has to be paid back. In GST, refunds process is complicated everywhere in the world as verification of refunds requires verification at different tiers of transactions from raw material to manufacture and supply of finished goods.
How much is tax paid for which the refund is sanctioned is a question that baffles the competent tax men. No

wonder that FBR’s annual reports and Quarterly Reviews are silent on the actual amount of tax collected, only to be refunded later.
Currently manufactures-cum-exporters file refund electronically with FBR portal. Others submit all details in the concerned tax-offices. Big export-houses complain that the whole process is so complicated enough forcing them to hire refund consultants and sometimes even the “services of local tax men are to be commissioned.” No amount of FBR claims that refunds are processed electronically will satisfy exporters.
Be it may, the e-portal of FBR issues Refund Payment Orders (RPO) electronically for verified amount of claimed refunds and remaining amount is deferred. Tax authorities claim that system defers amount, which is not verified. However this position is challenged by Pakistan Textile Exporters Association. It claims that deferment takes place due to system errors of FBR web portal.
Does the verification confirm that amount being refunded was earlier paid? The FBR authorities contend in affirmative but the independent system analyst question that if it is so then why refunds are made subject to Post Refund Audit after payment.
Tax reform commission, it is further argued, has already pointed out the billions of rupees paid in refunds were not payable. Where does the truth lie cannot exactly be ascertained except that the refund processing system is footloose as the officers can overrule the objections raised by the electronic system.
The refund has to be given within a time period, according to the law, but the reality is contrary to it. A few bar members allege that refund is withheld to boast about the revenue growth as it is one of the conditions of ongoing programme with IMF. Is this the principle reason necessitating the permission of finance minister for the payment of legitimate refunds?
It is relevant to point out that the data regarding pending payable refunds is not published by FBR. One serious economist puts question mark on current 15 percent revenue growth as billions of rupees are struck up in refunds. It is also noticed by exporters that cheque used to be issued automatically once RPO was generated. In recent years, it takes months before cheques are issued against valid RPOs. To be Continued.
The author is former DG Automation FBR
Email [email protected]
Twitter @chafqat