report on delay of sales tax refunds

REPORT
ON
DELAY OF SALES TAX REFUNDS
(PROBLEMS & ISSUES)
Federal Tax Ombudsman Secretariat
Islamabad
5th May, 2016
1
Executive Summary
On a complaint from Chairman Pakistan Apparel Forum about delay
in issuance of cheques by FBR against already issued Refund Payment Orders,
the Federal Tax Ombudsman constituted a seven member committee under the
chairmanship of Dr. Ikramul Haq, Advocate Supreme Court of Pakistan having
acknowledged expertise on taxation matters, on 18.01.2016 to investigate the
problems and issues relating to delay in issuance of sales tax refunds and make
appropriate recommendations for
remedial measures to clear backlog and
expedite such claims in future.
2.
The Committee in its Report has made following Recommendations
on various aspects of Blocked Refunds.
i.
Updated data regarding ‘Blocked Refunds’ may be placed on the FBR’s
website on monthly basis starting from 31. 8. 2016 containing disclosure
of following information.




ii.
Accumulated Refunds pending on 01.08 2016.
Refunds added during the month.
Refunds paid during the month.
Closing balance as on 31.08.2016.
FBR should expeditiously pay all outstandingly refunds where electronic
Refund Payment Orders (e-RPOs) have been issued.
iii. FBR should pay compensation in all cases where cheques for admissible
refund claims under Section 10 of the Act are not paid within 45 days of
filing or 07 working days of issue of e-RPO whichever is later.
iv.
FBR should send monthly report about delayed refunds, compensation
accrued and paid etc to the FTO.
v.
FBR should take measures to expand tax base and enforce filing of tax
returns.
1
vi. Tax Appellate system should be improved and tax disputes settled as
early as possible.
vii. FBR should resolve issues of delayed refunds and processing of manual
refund on the basis of date of filing.
3.
FTO and his senior officers keep on having close contact with
Business Community to know their grievances related to tax administration.
Besides that, the complaints are also a continuous source of information on the
response of taxpayers on tax policies and general conduct of the tax authorities.
The most recurrent issue brought to notice of this office is the delay in refund
claims. This tendency not only causes inconvenience to the tax payers,
especially the Business Community, but also plays counterproductive role in the
economic development. The objective of this exercise, at this stage, was to get
professional feedback on this important issue, so that some practical
recommendations could be evolved and forwarded to the competent authority for
consideration before the approaching Finance Bill.
4.
Implementation of Recommendations of the Report, summarized
above, will hopefully enhance Taxpayers’ confidence in the public policies and
Government’s efforts to establish good governance, and as a consequence, it is
hoped that this initiative will surely improve the pace of economic development
in the country.
2
Introduction
The Federal tax Ombudsman constituted a committee vide No.1(2) FTO/NICAP/
2015 dated January 28, 2016 to investigate and probe the problems and issues
relating to delay of the sales tax refund claims and recommend appropriate
measures to clear backlog and expedite such claims in future. It would be
pertinent to mention that this committee was constituted on the basis of letter
dated 12.01.2016 by Mr. Muhammad Jawed Bilwani, Chairman, Pakistan Apparel
Forum Karachi, complaining to the Federal Tax Ombudsman that FBR had created
serious liquidity problems for exporter by not issuing refund cheques despite
issuance of Refund Payment Orders (RPOs)since months.
The Committee consisted of the following members:
1. Dr. Ikramul Haq (Chairman of the Committee)
Advocate, Supreme Court,
167, G-1 Johar Town, Lahore.
2. Mr. Muhammad Adnan Jalil,
Messrs Al-Jabran Enterprises,
Jabran Adeel Plaza,
Bilal Town, G.T.Road, Peshawar.
3. Mr. Atif Ikram
President,
Islamabad Chamber of Commerce & Industry
Aiwan e Tijarat Road, G-8/1, Islamabad
Ph: 051-2253145, E-Mail: icci@brain.net.pk
4. Mr. Muhammad Jawed Bilwani
Chairman
Pakistan Apparel Forum
P.A.F. Central Secretariat Office
PHMA House, 37-H, Block-6, P.E.C.H.S, Karachi
5. Mr. Younus Muhammad Bashir
President Karachi Chamber of Commerce and Industries
Aiwan e Tijaratm Shahran e Liaqat, Karachi
6. Chairman
Federal Board of Revenue
Constitution Avenue Islamabad
(with the request to nominate his representative of Member Status)
7. Mr. Abrar Ahmad Khan (Secretary of Committee)
Advisor, Federal Tax Ombudsman, FTO Secretariat, Islamabad
3
2.
Meetings
The first meeting [Reference No. 1(2) FTO/NICAP/2015 dated February 25, 2016]
of the Committee was held on March 5, 2016 at Federal Tax Ombudsman
Secretariat, 5-A, Constitution Avenue, Islamabad. The meeting was attended by
the following:
Participants of first meeting of the FTO Committee on Refund held on
05.03.2016.
Name of Participants
Deptt/ Company
Contact No.
1. Dr. Ikram-ul-Haq (in chair) Advocate, Supreme Court
0300-8496205
2. M. Jawad Bilwani
Pakistan Apparel Forum
0300-8228861
3. M. Adnan Jalil
Messrs A-Jabran Enterprises,
0333-9107000
4. Rehmatullah Wazir
Member (IR-Policy), FBR
0336-8456762
5. Abdul Hameed Memon
Chief (Auto& Sales Tax), FBR
0333-5729905
6. Abrar Ahmad Khan
Advisor, FTO Secretariat,
0323-5329389
The minutes of the Committee are available at Annex A
The second meeting of the Committee was held on March 19, 2016 through Skype
and following were the participants:
Name of Participant
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
Location
Dr. Ikram ul Haq, Advocate Supreme Court (in chair)
Mr. Muhammad Adnan Jalil, Businessman, Peshawar
Dr. Irshad Ahmad, M(IR) FBR
Mr. Muhammad Jawed Bilwani, Chairman, Pakistan Apparel
Forum
Mr. Arshad Shehzad, Consultant, PHMA
Mr. Shoaib Ahmad Faridi, Chairman GST& Refund SubCommittee, KCCI
Mr. Arif Ikram President, ICCI
Mr. Abdul Hameed Memon, Chief FBR
Mr. Abrar Ahmad Khan Advisor FTO Secretariat
Lahore
Peshawar
-doKarachi
Karachi
Karachi
Islamabad
Islamabad
Islamabad
The minutes of the Committee are available at Annex B
4
The final meeting of the Committee was held on April 21, 2016 at the FTO Office,
Islamabad. The following participated:
Name of Participant
i.
Dr. Ikram ul Haq, Advocate Supreme Court (in
chair)
ii.
Mr. Muhammad Adnan Jalil, Businessman,
Peshawar
iii.
Dr. Irshad Ahmad, M(IR) FBR
iv.
Mr. Muhammad Jawed Bilwani, Chairman,
Pakistan Apparel Forum
v.
Mr. Arif Ikram President, ICCI
vi.
Mr. Abdul Hameed Memon, Chief FBR
vii. Mr. Abrar Ahmad Khan Advisor FTO Secretariat
The minutes of the Committee are available at Annex B-I
5
3.
Blocked refunds-Determination of Quantum
During the first meeting of the Committee held on 05.03.2016 in the Conference
Room of Federal Tax Ombudsman Secretariat Islamabad, the representatives of
the Federal Board of Revenue (FBR) presented the following figures of unpaid
refunds of exporters:
(Million Rs).
ALL
EXPORTERS
CASES
AMOUNT
CASES
AMOUNT
FRESH
10,874
45,505
7,524
22,244
DEFERRED
53,897
32,515
44,971
22,025
RPOs Issued
13,120
32,888
12,309
24,966
ALL CASES
77,891
110,908
64,804
69,235
Pakistan Apparel Forum, Karachi, in their letter dated 15.01.2016 claimed that 60
members of Pakistan Hosiery manufacturers & Exporters Association had not
been issued cheques for Rs. 1004.454 million involved in 378 RPOs issued months
ago.
Recommendation
Since there are claims and counter claims about the exact quantum of pending
sales tax refunds, the Committee recommends that FBR should place on its
website data on monthly basis and update showing the following:
1.
2.
3.
4.
Refunds pending as on---------------Refunds added during the month
Refund paid during the month
Closing balance as on--------------
Deadline for this exercise should not be later than August 31,
2016, as recommended in the final meeting held on April 21,
2016.
6
4. Blocked refunds—ramifications
The Finance Minister of Pakistan on November 26, 2015 made a statement before
the House Standing Committee on Finance, Revenue, Economic Affairs, Statistics
and Privatization that FBR had outstanding refunds of Rs. 200 billion. Never
before, was this mammoth quantum of refunds ever admitted officially. In fact,
on his farewell party, the ex-Chairman of FBR claimed that under his tenure “taxto-GDP ratio exceeded 11%”. It is obvious that it was made possible only through
withholding refunds of Rs. 200 billion as admitted by the Finance Minister.
The Finance Minister told the House Standing Committee on Finance, Revenue,
Economic Affairs, Statistics and Privatization that “an out of the box solution is
under consideration to clear all the pending refund of Rs 200 billion in an effort to
avoid their financial impact on federal and provincial governments' income”. The
FBR in the final meeting held on April 21, 2016 expressed it resolve to clear all
outstanding refunds by August 31, 2016. All the members appreciated the
commitment and resolve of the government and FBR in paying all the outstanding
refunds to boost economy and restore the confidence of the taxpayers in the
system. It is obvious that unless all the outstanding refunds are paid, the FTO
office will keep on receiving complaints, huge number of which are already
pending.
The Finance Minister told the Parliament’s Committee that “in case of payment of
refunds from divisible pool, it would cause serious consequences on federal and
provincial governments’ income.” The question is why to show inflated
collection to pay more to provinces from divisible pool? The provinces should
raise their own revenues rather than relying on “inflated tax collections of FBR”.
The Chairman of the Standing Committee on Revenue, Economic Affairs, Statistics
and Privatization, Qaiser Ahmad Sheikh, rightly observed that the blockage of
refunds had created a serious liquidity crunch for the exporters. This is, no doubt,
the most disturbing aspect of non-payment of refunds by FBR. The exports are
backbone of economy and non-payment of refunds are contributing towards
declining exports, increasing balance of payment and leading to more borrowing
and widening fiscal deficit as debt servicing is now the highest component of
federal government spending. In fiscal year 2014-15, fiscal deficit constituted
nearly 60 percent of the total collection of FBR.
7
Recommendation
1. For good governance and transparency, data relating to unpaid refunds should be made
available on the websites of FBR as early as possible but not later than 31 August 2016. It should
be updated every month so that public know how much tax is collected under various heads and
what is payable to the taxpayers.
2. FBR should expeditiously pay all the outstanding refunds for which E-RPOs
issued and wherever there is delay compensation should be paid.
3. A monthly report should be sent to the FTO Office about delayed refunds,
compensation accrued and/or paid and action taken under the law for
causing loss to national exchequer by paying compensation.
8
5.
Blocked refunds—Staututory Remedies
Admissible refunds under section 10 of the Sales Tax Act, 1990 (the Act) are
payable within 45 days. Where a refund under section 10 is not made within the
time specified, there shall be paid to claimant a further sum equal to KIBOR under
section 67 of the Act. Under sub-rule 7 of the Rule 26-A of the Sales Tax Rules,
2006 cheques are required to be issued within one week of issue of electronic
advice (e-RPO).
As evident from above, compensation is to be paid to the taxpayers where
refunds filed under Section 10 of the Act are not paid with the time fixed under
the law.
Recommendation
FBR should pay compensation in all cases where cheques for admissible refund
claims under Section 10 of the Act are not issued within 45 days of filing of refund
claims or 07 working days of issue of e-RPOs, whichever is later.
A monthly report should be sent to the FTO Office about delayed refunds,
compensation accrued and/or paid.
9
6.
Blocked refunds—Resource Mobilsation
Our tax base under sales tax regime is extremely narrow. The data regarding total
number of registered persons, filers, non-fillers, nul fillers and nil filler provided
by FBR is reproduced below:
REGISTRATION INFORMATION OF ST REGISTERED PERSONS
3/18/2016
REGISTERED
UNITS
FILERS
NON
FILERS
NUL
FILERS
NIL
FILERS
PAYMENT
FILERS
S#
YEAR
1
2011-12
148,383
98,694
49,689
38,084
31,053
29,557
2
2012-13
158,015
101,494
56,521
40,865
26,636
33,993
3
2013-14
170,587
109,940
60,647
45,818
23,858
40,264
4
2014-15
171,438
115,557
55,881
49,994
25,762
39,801
5
2015-16 (Upto
Feb)**
190,336
118,778
71,558
55,443
25,679
37,656
Recommendations
It is obvious that refunds cannot be paid or stalled to be accumulated unless, FBR
raises its collections and expand sales tax base.
Voluntary tax compliance cannot succeed without an effective system of
deterrence. FBR must introduce an effective automated Tax Intelligence System
that can effectively check tax evasion and avoidance [‘Resource Mobilisation
Strategy, Business Recorder, March 21, 2014]. There is an urgent need to make
FBR efficient and effective organisation, capable of performing the assigned
duties diligently within four corners of law.
“The collection of sales tax has been highly concentrated in few commodities. This
is confirmed by the fact that in 2014-15 only petroleum products contribute
around 44% of the total sales tax domestic. Major 10 items including
POL and natural gas shared 73% of the total net sales tax domestic1.” The
following facts for FY 2014-15 confirm the narrow base of sales tax:
1
FBR’s Biannual Review (January-June 2014-15)
10

Net collection under sales tax in : Rs. 1087.7 billion

Imports: Rs. 553.028 billion

Domestic: Rs. 534.762 billion

POL products:

Contribution in STD: Rs. 233.2 billion (43.9%)

Contribution in STI: Rs. 166 billion (29.8%)

Out of total 175,000 registered taxpayers only 117,072 (67%) filed returns and only 55,000 (less
than 32% of registered persons and 0.025% of total population of the country) paid any tax. Out
of total domestic sales tax collection of Rs. 531 billion, more than 89% was paid by only less than
400 entities. In other words, only 0.19% of the registered taxpayers contributed more than 89%
of sales tax.
Table: FBR Tax Collection (2001-02 to 2014-15)
(million rupees)
Total of
Indirect
Taxes
Total Tax
Collection
Fiscal Year
Direct Taxes
Sales
Excise
Customs
2001-02
142,505
166,561
47,186
47,818
261,565
404,070
2002-03
151,898
195,139
44,754
68,836
308,729
460,627
2003-04
165,079
219,167
45,552
91,045
355,764
520,843
2004-05
183,372
238,537
53,104
115,374
407,015
590,387
2005-06
224,988
294,798
55,272
138,384
488,454
713,442
2006-07
333,737
309,396
71,804
132,299
513,499
847,236
2007-08
387,862
377,430
92,137
150,663
620,230
1,008,092
2008-09
440,271
452,294
116,055
148,382
716,731
1,157,002
2009-10
528,649
517,302
121,182
161,489
799,973
1,328,622
2010-11
602,451
633,357
137,353
184,853
955,563
1,558,014
2011-12
738,822
804,846
122,460
216,898
1,144,204
1,883,026
2012-13
743,410
842,525
120,922
239,459
1,202,906
1,946,316
2013-14
877,274
996,100
138,064
242,799
1,376,963
2,254,237
2014-15
1,033,720
1,087,790
162,248
306,220
1,556,258
2,589,978
Source: http://www.sbp.org.pk/ecodata/tax.pdf
11
The above data shows that there is substantial tax gap in collection of income tax
and sales tax.
FBR should undertake a scientific study about real tax potential of Pakistan. The
government should take concrete measure to tackle undocumented economy and
bridge huge tax gap.
RECOMMENDATIONS
 There should be prompt payment of refunds and statutory period
stipulated for return of money due to a taxpayer should be adhered to and
in case of any delay, compensation, which is mandatory, must be paid.
 FBR should take measures to expand tax base, enforce filing of
returns/statements.
 Resource mobilization should be the priority by collecting tax wherever due
and detest from recovering it from where it is not due.
 Tax appellate system should be improved so that taxpayers and FBR should
have certainty of taxes actually due. For good administration, tax disputes
should be finally settled as early as possible.
 The issues raised in Annex C should be given due consideration by the FBR.
After holding meeting(s) with exporters, refunds due should be settled to
their satisfaction. A detailed compliance report on all the points raised by
them should be sent to FTO Office.
12
Annex-A
Minutes of the first meeting of the Committee Constituted by the
Federal Tax Ombudsman about pending refund claims.
The first meeting of the committee constituted by the Federal Tax
Ombudsman to investigate and probe the problems and issues relating to delay of
the Tax Refund Claims and recommend appropriate measures to clear backlog
and expedite such claims in future, was held under the Chairmanship of Dr.
Ikramul Haq, Advocate, Supreme Court on 05.03.2016 at 10.00 am in the
conference Room of FTO Secretariat Islamabad. List of participant is attached as
Annex-I.
2.
The meeting started with recitation from Holy Quran. The Chair welcomed
the participants and invited them for offering their views on the issue.
3.
Mr. Adnan Jalil stated that deptt officials were creating problems for
genuine refund claimants by demanding bribes while paying immediate refunds
to fake exporters who made payments under the table. Mr. Jawed Bilwani
informed that more members of Pakistan Apparel Forum (PAF) had provided lists
of pending RPO’s awaiting issue of cheques by Chief (CSTRO) and the pendency
figure in respect of PAF members had crossed Rs 1.0 billion. Mr. Rahmet Ullah
Wazir M(IR Policy) informed the meeting that the comparative figures of
outstanding sales tax refund claims upto February 2016 and upto February 2015
were as under:(Million Rs).
Period
Number of Cases
Amount
Upto February, 2015
66,662
11,850
Upto February, 2016
77,891
110,908
He also provided the following figures of pendency as on 02.03.2016:13
(Million Rs).
ALL
EXPORTERS
CASES
AMOUNT
CASES
AMOUNT
FRESH
10,874
45,505
7,524
22,244
DEFERRED
53,897
32,515
44,971
22,025
RPOs Issued
13,120
32,888
12,309
24,966
ALL CASES
77,891
110,908
64,804
69,235
He also informed that Finance Minister has ordered to issue cheques for all RPOs
issued upto 12.02.2016 upto Rs.5 million by 15.03.2016 and FBR would pay Rs.9.8
billion by issuing cheques in 33,700 RPOs. Further that share of PAF members in
this amount would be Rs.400 million.
4.
Mr. Abrar Ahmad Khan informed the meeting that under the Sales Tax Act,
1990 the FBR is required to pay admissible refunds within 45 days. Moreover
under the Sales Tax Rules, 2006, cheques are required to be issued within 7
working days of issue of RPO. FBR is not following these provisions of Act/Rules
deliberately and delaying the refund to show more net collection. Refund
claimants are entitled to additional payment (Compensation) under Section 67 of
the Act in cases where FBR field formations process refund claims after expiry of
38 days of filing and Chief (CSTRO) issues cheques after expiry of 7 working days.
The Chair asked the M(IR-Policy), FBR to inform number of registered persons
under the Sales Tax Act, 1990 alongwith numbers of regular return filers and
actual tax payers. It was agreed to hold next meeting on 19.03.2016 through
video link. The meeting ended with thanks to the Chair.
14
Participants of first meeting of the FTO Committee on Refund held on
05.03.2016.
Name of Participants
Deptt/ Company
Contact No.
1. Dr. Ikram-ul-Haq (in chair) Advocate, Supreme Court
0300-8496205
2. M. Jawad Bilwani
Pakistan Apparel Forum
0300-8228861
3. M. Adnan Jalil
Messrs A-Jabran Enterprises,
0333-9107000
4. Rehmatullah Wazir
Member (IR-Policy), FBR
0336-8456762
5. Abdul Hameed Memon
Chief (Auto& Sales Tax), FBR
0333-5729905
6. Abrar Ahmad Khan
Advisor, FTO Secretariat,
0323-5329389
15
Annex-B
Minutes of the meeting of the committee constituted by Federal Tax
Ombudsman held on Skype on 19.03.2016.
The second meeting of the committee constituted by the FTO was held through
Skype on 19.03.2016 at 10.00 am which was attended by the following at
different stations:Name of Participant
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
Location
Dr. Ikram ul Haq, Advocate Supreme Court (in chair)
Mr. Muhammad Adnan Jalil, Businessman, Peshawar
Dr. Irshad Ahmad, M(IR) FBR
Mr. Muhammad Jawed Bilwani, Chairman, PAF
Mr. Arshad Shehzad, Consultant, PHMA
Mr. Shoaib Ahmad Faridi, Chairman GST& Refund
Sub-Committee, KCCI
Mr. Arif Ikram President, ICCI
Mr. Abdul Hameed Memon, Chief FBR
Mr. Abrar Ahmad Khan Advisor FTO Secretariat
Lahore
Peshawar
-doKarachi
Karachi
Karachi
Islamabad
Islamabad
Islamabad
2.
Dr. Ikram-ul-Haq welcomed all participants to the meeting and opened the
discussion with the remarks that he wants that the committee should formulate
its recommendation in the today’s meeting so that the same are submitted to
Hon’ble FTO for onward transmission to FBR for inclusion in the coming budget.
3.
Mr. Mohammad Adnan Jalil made following suggestions in the meeting:i.
ii.
iii.
iv.
v.
vi.
All exports be zero rated with proper control on documentations
FBR functionaries should adopt taxpayer friendly behavior with taxpayers.
More automation may be done to limit role of audit officers.
Taxes may be simplified and curtailed to GST and Income Tax only.
Rate of GST should be brought to single digit.
Fixed income tax may be imposed on non-registered retailers.
16
4.
Dr. Irshad M(IR Operation) FBR stated that government was seized with the
matter of delay in refund and cheques in respect of all RPOs upto Rs 5.0 million
issued upto 12.02.2016 were to be issued by 15.03.2016 as per orders of Finance
Minister have been a bit delayed due to technical problems but would be issued
in coming week. He also informed that all pending refunds would be liquidated in
July, 2016. On a query from Mr. Muhammad Jawed Bilwani about the meeting of
businessmen with Federal Finance Minister regarding refund matter wherein Mr.
Zubair Tufail was also present and had informed that F.M had announced to also
pay refund amounts bigger than Rs.50 Lac through cheque instead of payment
through Bond, Dr. Irshad M(IR) Operation informed that the condition of Bond is
eliminated and Government will now pay all refunds through cheques and not
through Bond. He also said that he would like to inform that Government is most
serious to clear all refunds and that he felt that Government has accumulated the
amount for this purpose and payment of refunds will be started from 1st July,
2016. He further said that presently they were facing serious I.T issues regarding
redesigning and modifying the system and modules.
5.
Muhammad Jawed Bilwani said that he was surprised and unable to
understand that if Government has decided to zero rates the five export sectors
and to pay all refunds then Government should not delay and accord zero rating
facility forthwith. He said that the exporters are compelled to think that when
huge amount of the liquidity is withheld, they are not only unable to export but
feel that it would be practical that they commence their exports only after zero
rating is implemented in July, 2016. He said that this will result in further decline
in exports, therefore it would be most practical that to avoid decline in exports,
the decision for zero rating is immediately implemented without the least delay.
Muhammad Jawed Bilwani further appealed that all refunds against RPOs should
be paid forthwith. He said that he had a summary of Finance Ministry in which
they had mentioned that they will collect Rs.10 billion from the local sales and it is
really unfortunate that for just Rs.10 billion, the Government is penalizing the
exporters and holding back their precious liquidity amount of Rs.100 to Rs.200
billion. He further said that moreover huge funds against Customs Rebate Claims
and DLTL are also pending and stuck up with the Government which is really
astonishing. He said that he had visited the Tariq Road market with Mr. Salman
17
Siddiq the then Chairman FBR and showed him that in all the stores 90% products
are imported and sold locally. Muhammad Jawed Bilwani finally proposed that:
1. Amount of Sales Tax refundable should be kept in a separate account.
2. If any official of FBR fails to refund the Sales Tax amount to exporters within
45 days under section 10 of the S.T.A. 1990, the concerned officers should be
punished and penalized.
3. If Concerned RTO /LTU fails to arrange issuance of cheque for the amount
cleared by RMS within 7 working days after receipt of the E-RPO, the concerned
RTO / LTU should be punished and penalized.
6.
Mr. Shoaib Ahmed Faridi stated that there is not any problem in processing
of Refund Claims through E-filing. The RPOs are generated within 24 hours and
that we have no any complaint in this regard. But the complaint is that the
cheques are not issued for months although Rule 26A (7) of the Sales Tax Rules
2006 provides for issuance of cheques within 7 days. Further that if payment is
not made within specified time then the department will pay to the claimant
additional amount equal to KIBOR as provided under Section 67 of the Sales Tax
Act 1990. He complained that normal claims were being processed without any
consideration of Date and Que. In this system corrupt practices, like bribe are
used. The claims are processed on the sweet will of Commissioner and Chief
Commissioner. There are a lot of complaints in this regard. He recommended that
the same procedure of processing of the refund claim through e-filing may also be
adopted here and it should be processed Date wise and Que wise. As provided
under Section 10 of the Sales Tax Act 1990 the RPO should be issued within 45
days and thereafter the cheques within 7 days. He also stated that the actual
problem leading to delay in payments of refund claims is a political matter and is
being handled by Finance Minister and the Advisor to Prime Minister. They are
18
showing gross collection of taxes whereas it should be net collection after
deducting amount of due refunds. Such figures are presented before IMF to
please them and to show performance. Everything is provided in law and the
Ministry of Finance should not intervene. But this is not being done and even the
approval to issue the refund cheques is being obtained from the Finance Minister.
He praised the present FBR team. He proposed to make FBR an independent
institution like State Bank of Pakistan then it will be free from any influence and
will work independently. The accountability of all the officers of lower and upper
grade of FBR will rest upon Chairman FBR and its Members.
Mr. Arshad Shahzad stated that there is no second opinion that sales tax
refunds under Section 10 of the Sales Tax Act 1990 read with Sales Tax Refund
Rules 2006 are required to be settled within 45 days or otherwise FBR are
mandatorily require to pay compensation in terms of Section 67 of the Act. The
representative of FBR has admitted refund payment orders are laying pending
with them for last more than six months due to financial constraint and budgetary
allocation problems. The Chief Automation in his report has also submitted details
of pending numbers of claims. He accordingly argued that releasing timely refund
payment is the core issue besides other technical problems. He said collection of
sales tax is quite illogical from exporters since eventually it has to refunded. In
this way not only FBR needs to divert its efforts on a non-revenue generating
event but also exports are suffering. He said recently we have witnessed
significant decline in textile exports and until and unless government removes
such tactical problems we could not arrest this decline in exports. He also stated
that zero rating regime for procurement of sales tax free industrial raw material
remained successfully operational between 2005 to 2013 we observed consistent
export growth well. The FBR in February 2013 slapped sales tax at reduced rate
on industrial raw material of five export oriented sectors with the claim to timely
release refunds to exporters and retaining the remaining share pertaining to local
sales/domestic consumption. He said though the objective was correct but its
execution proves a total failure and resulted in substantial decline in exports as
well accumulating of huge sales tax refund. He suggested government should
revert back to zero rating regime prevailed prior to 2013 for five export oriented
7.
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sector to avoid accumulation of sales tax refund in future and at the same time
worked out modalities for collecting sales tax on its domestic consumption from
alternative legislation. In this way the government can eliminate corruption, get
focus of tax machinery on revenue collection and at the same time provide level
playing field to export sectors as recently assured by both Finance and Prime
Minister of the Country.
8.
Mr. Abrar informed the meeting that it is common knowledge that refunds
under Expeditions Refund System are filed and processed through system. He
stated that as regards refund under normal system there is no technical hitch in
their processing except that FBR does not want to process the pending refund
claims as it would increase the number of already pending RPOs which are
awaiting issue of cheques and the current backlog figure of such RPOs provided
by FBR in the meeting of the Committee on 05.03.2016 stood at Rs 24.97 billion.
He also stated that current law provides payment of compensation for delayed
refunds which taxpayers can get enforced through FTO.
9.
It was unanimous view of the non-FBR participants of the meeting that FBR
functionaries were deliberately delaying processing of refund claims and issuance
of refund cheques in respect of already issued Refund Payment Orders to show
FBR revenues on higher side to appease IMF at the cost of exporters. It was also
their consensus that FBR is legally bound to pay compensation in cases of delayed
refunds under Section 10 of the Act.
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Annex-B-I
Minutes of the Final Meeting of the Committee Constituted by the FTO held in
the Conference Room of FTO Secretariat, Islamabad on 21.04.2016 at 12:30 PM
The final meeting of the Committee constituted by the FTO was held on
21.04.2016 at 12:30 PM in the Conference Room of the FTO Secretariat Islamabad
and was attended by the following:1. Dr. Ikramul Haq (in Chair)
Advocate, Supreme Court,
167, G-1 Johar Town, Lahore
2. Mr. Muhammad Adnan Jalil,
Messrs Al-Jabran Enterprises,
Jabran Adeel Plaza,
Bilal Town, G.T.Road, Peshawar.
3. Mr. Muhammad Jawed Bilwani
Chairman
Pakistan Apparel Forum
P.A.F. Central Secretariat Office
PHMA House, 37-H, Block-6, P.E.C.H.S, Karachi
4. Mr. Atif Ikram
President,
Islamabad Chamber of Commerce & Industry
Aiwan e Tijarat Road, G-8/1, Islamabad
5. Dr. Muhammad Irshad, Member IR (Operations)
Federal Board of Revenue
6. Mr. Abrar Ahmad Khan
Advisor, FTO Secretariat
7. Abdul Hameed Memon,
Chief (Auto & Sales Tax),
FBR,
2.
The Committee members considered the final draft of the report. Minor
amendments proposed in the draft report by the Member-IR (Operations), FBR
were approved by the Committee. The revised final draft of the report was also
approved by the members unanimously. The Chair thanked the members for
unanimous report within the time specified by the Hon’ble FTO. The meeting
ended with the thanks to the Chair.
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Annex C
SUB: THE 2ND MEETING OF VIDEO CONFERENCE OF THE COMMITTEE TO
INVESTIGATE THE PROBLEMS RELATING TO DELAY IN REFUND CLAIMS
HELD ON 19-03-2016 AT PHMA HOUSE KARACHI. MEETING ATTENDED BY
MR. SHOAIB AHMED FARIDI, CHAIRMAN, GST & REFUNDS, SUBCOMMITTEE, KCCI, KARACHI ON BEHALF OF PRESIDENT KCCI.
Dear Sir,
Karachi Chamber of Commerce & Industry (KCCI) presents its best wishes and
compliments to you.
I on behalf of President, Karachi chambers of Commerce & Industry explained the
matter in detail which was appreciated by Dr. Ikramul Haq (Chairman of the
committee) and Mr. Abrar Ahmed Khan (Advisor to FTO / Secretary of the
committee) and others.
Processing of Refund Claims through E-filing:
I would like to point out again that there is not any problem in system. The RPOs
are generated within 24 hrs and that we have no any complaint in this regard. But
the complaint is that the cheques are not issued immediately when there is a law
in Sales Tax Act. Rule 26 of Sales Tax Rules 2006, Chapter-V relates to refund. Sub
rule (6 ) and (7) clearly provides the procedure of processing the claims and
issuance of cheques within 7 days and if the payment is not made within specified
time then the department will pay to the claimant additional amount equal to
KIBOR as provided under section 67 of the Sales Tax Act 1990.
Processing of Refund Claims Through Manual System:
If for certain reasons the refund claims which are not accepted on e-filing system
then these are submitted manually according to old system. But in such cases the
discretionary powers are used because these are processed without any
consideration of Date and Que. In this system corrupt practices, like bribe are
used. The claims are processed on the sweet will of commissioner and chief
commissioner. There are a lot of complaints in this regards. The claims are not
even touched unless a direction is not received from FTO. Sometimes show cause
notice is issued to the department by FTO but no fruitful result comes out. It
appears that the institution of FTO is also a part of FBR. I would recommend that
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the same procedure of processing of the refund claim through e-filing may also be
adopted here and it should be processed Date wise and Que wise. As provided
under section 10 of the Sales Tax Act 1990 the RPO should be issued within 45
days and thereafter the cheques within 7 days.
Note: No legislation required any more, only implementation of law which is
already available.
SUGGESTION:
Dr. Ikramul Haq is the Chairman of the committee. I am bringing to his knowledge
the actual problem leading to delay in payments of refund claims. In fact it is a
political matter and is being handled by Finance Minister and the Advisor to Prime
Minister in the matter of refund of sales tax. They are showing gross collection of
taxes whereas it should be net collection after deducting amount of due refunds.
Such figures are presented before IMF to please them and to show performance.
Everything is provided in law and the Ministry of Finance should not intervene.
But this is not being done and even the approval to issue the refund cheques is
being obtained from the Finance Minister. I have more than 30 years experience
and I am saying this with full confidence. In the present regime the team of
officers in FBR like Chairman FBR Mr. Nisar Mohammad Khan, Member Operation
Dr. Mohammad Irshad, Chief (Auto & Sales Tax) Mr. Abdul Hameed Memon and
Member (IR Policy) Mr. RehmatullahWazir are very competent and reputed
officers. I have not seen before such a competent and devoted team of officers. If
the FBR is also made a independent institute like State Bank of Pakistan, then it
will be free from any influence and will work independently. The accountability of
all the officers of lower and upper grade of FBR will rest upon Chairman FBR and
its Members. This is vital proposal for our future economy.
I hope that this will also be recommended by the Chairman in his investigation
report regarding delay in refund claims.
Thanking you and looking forward to having your kind consideration in this
regard.
Sincerely yours,
On behalf of
President, Karachi Chamber of Commerce & Industry, Karachi.
SHOAIB AHMED FARIDI
CHAIRMAN
GST & Refunds Sub-Committee, KCCI, Karachi.
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