The Federal Board of Revenue (FBR) has paid refunds amounting to Rs. 37 billion during September 2023 as compared to Rs. 18 billion issued in September 2022, reflecting an increase of Rs. 19 billion.
According to the data of tax collection released by the FBR, the total amount of refunds paid during July-September (2023-24) stood at Rs. 128 billion. The refunds amounting to Rs. 42 billion were issued in August 2023 as against Rs. 38 billion in August 2022. The FBR has paid refunds amounting to Rs. 49 billion in July 2023.
The FBR is required to check bogus refunds and leakages to increase genuine refund payments. The estimated sales tax amount evaded through the fraudulent use of flying invoices through illegal refunds and tax adjustments stood at nearly Rs. 5-6 trillion.
The use of fake invoices has been reduced due to system checks, but the phenomenon of flying invoices has increased. The estimated amount of sales tax evaded with the help of flying invoices comes to the tune of Rs. 5-6 trillion, sources said.
Federal Tax Ombudsman (FTO) has strongly recommended the Federal Board of Revenue (FBR) conduct physical verification of business premises of all manufacturers, who file the first claim for sales tax refund in the “FASTER” refund system.
According to an order of the FTO, the FBR may consider the following measures to develop adequate safeguards in the refund systems of FASTER:
- When the manufacturer files the first claim of refund in the FASTER, physical verification of the business premises by the concerned Regional Tax Office (RTO) may be ensured to determine the genuineness of the business activity and determination of its production capacity by co-relating it with its utility expenses. Any change of particulars in Form 181 in IRIS may be made with the prior approval of the concerned Commissioner-IR.
- A validation check may be put in place to cross-match the purchases declared in the sales tax returns with the capital declared in the income tax return.
- The FBR should co-relate the HS code of goods purchased as declared in sales tax returns and may be made compulsory in the IRIS for the refund claimant in order to determine its relevance to the supply chain.
- FBR should build in checks that may be introduced in FASTER to block refunds in cases of sales tax registration number (STRN) suspension with the same CNIC of individual/ AOP member/ director of a company.
Actual verification of payment deposit may be put in place in the FASTER instead of invoice-based input verification mechanism.
There are only two ways of sales tax payment:
- through CPR
- through a Bill of Entry at the time of import.
Currently, the input validation process through columns 7(a) and 7(b) is in place. Evidence-based physical transactions will ensure input tax deposits in the government treasury.
