FBR refund system bleeding both ways —Part II

India’s Inland Revenue Department has introduced “Cen vat Credit” scheme whereby taxpayer can settle any liability against his credit/refund. This can conveniently be adopted by FBR by making Refund Payment Order (RPO) negotiable.
Exporter or any taxpayer who is issued RPO can make payment through well-tested schemes like Cen vat Credit. However, make sure that such credits are used only for the settlement of tax liability. This will make life easier for FBR, which finds it difficult to issue cheques.
The exporters and other stakeholders are of the opinion that FBR should go for “no tax no refund regime” or fix the existing technology so that it can detect the inadmissible refunds and pay the admissible directly to the bank account of exporters without any delay.
The existing system of verification of refund, they further demand, must also be used for the input tax credits claimed by the suppliers in their monthly returns. Once tax credits are verified then refund resulting out of such credits will become verifiable. They too applauded the scheme of converting RPOs/Refund vouchers into Cen vat Credit.
On the income tax side, refund accrues when tax already paid in the form of withholding tax exceeds the tax liability. In most of the corporate cases, refunds application credits are transferred to next year. The general tendency of the department, a chartered accountant explained, is not to grant refund. Besides, refund entails “service charges” and as such sector prefers to carry it forward.
One of the main tax bar members remarked: “Such assertion was innocent veiling of the fact that adjustment is availed in order to avoid scrutiny which is done for verification of refunds.” The chambers of commerce also question why the technology is not used for processing of income tax refund.
Withholding of customs duty drawback doesn’t make any sense as these are generated once the export takes place. One of the customs collectors confided that they are assigned revenue target and in case drawback is paid upfront they miss their revenue targets.
FBR employs technology for processing sales tax refund as well for customs duty drawback whereas income tax refunds are processed manually. Electronic as well as manual processing takes place on sales tax. Exporters are very perturbed over delay in the issuance of cheques after generating RPOs.
FBR is capturing all details of purchases and sales and its technology can be upgraded to verify such transaction at pre-filing of return. In this context, taxpayers generally appreciate government’s resolve expressed in the Letter of Intent of March 12 this year to accept return only of verified taxable purchases.
It will take care of row between taxpayers and FBR where the latter withholds tax adjustment if suppliers are subsequently suspended as in pre-filing stage of returns, taxpayer will be aware of admissibility of purchases.
It is indeed worrying to note that FBR refund payment exceeds more than fifty billion rupees annually and still is criticised for withholding the refund. Exporters say the refund accrues in accordance with quantum of exports; increase in export will obviously result in more refunds. Does the government want to curtail exports to curtail refunds? It obviously cannot be the intent of the revenue authorities.
The option for the FBR is to fix the nuts and bolts of electronic refund processing system and minimize, if not eliminate, the manual processing. This is the only way to take care of fraudulent refund and tax credits. Once the tax credit is fixed, the revenue growth will go up. This is achievable if the FBR seriously fixes loose nuts and bolts in the existing technology. (Concluded)
The author is the former DG Automation FBR