A Federal Tax Ombudsman (FTO) research analysis of the Federal Board of Revenue’s (FBR) refunds recommended that the Refund Payments orders (RPOs) issued by the FBR should be established to be treated as exchangeable payment instruments, equally available for adjustment within and across the taxes by providing control to the refund claimant.
Stopping these legitimate payments of the industry when there is a high cost of borrowing from banks for exporters is creating frustrations.
The registration profile of refund claimants such as value-added surgical units, and sports goods is not updated in refund data and older data is being used for the rejection of claims by treating them as non-zero rate units. Updation and profile regarding exporting PCT should be used.
There shall be a sector-specific systemic arrangement of the negative list based on analysis of input materials for each exporting sector instead of denying products without considering the raw material specific to a sector. There is a large list of raw materials added to the negative list, the study recommended.
The study further analyzed that instead of streamlining the FASTER System, some exporting sectors are excluded from online processing systems such as Foods, electronics, pharmaceuticals, and agriculture products such as rice, confectionery, dairy, ceramics, footwear, etc.
This will not help boost exports. For all these sectors, delays in getting refunds and lack of facilitation by the government are some of the reasons for not performing up to their potential.
While processing Refunds of non-manufacturers or commercial exporters realization of exports is verified through data batches and that creates delays and errors, there is a requirement to make it real-time integration with this banking data for refund processing and audit purposes.
The FTO report disclosed that the automation of tax collection as initiated through the Iris System, integration of all taxes as conceived in Single Return, linking of income tax and sales tax transactions, updation of integration with Custom clearance data and utilization of 3rd party data such as banking transaction and AGPR and utility companies is only the way forward.
Rolling back the progress so for made with an automated system will not help build capacity rather will only serve short-term purposes.
A centralized Risk Analysis system such as CREST, Post refund audit System, POS retail transaction system, and Track and trace system shall be improved and strengthened by continuous training of the field formations as a part of capacity building. Another big issue to focus on is flying invoices, where tax is paid for non-export transactions but credit invoice is purchased from the market for non-relevant goods or the same goods of the end user. The FASTER system is built for relevancy checks against a negative list of HS Codes, declared non-admissible to block such refund claims.
Then there is a need to establish more strict parameters for low-tariff countries such as Afghanistan, UAE, and Bangladesh. At taxpayers’ profile refund processing shall be made simpler for 100 percent of exporters. However, as the sales tax return inherently tracks only values, not quantity or volumes hence there is always a chance of flying invoice misuse unless quantitative controls are not available at the level of sales tax return, the study recommended.
Presently, when a claim is deferred or disqualified the same will be stuck for seven weeks without any process which also means that the taxpayer will not be able to file subsequent claims and most cases will suffer time bar conditions. After 7 weeks, the taxpayer will have to contact the concerned tax office under his jurisdiction to get it processed and that is the most difficult phase, consuming time, resources, and references. In a large number of cases, taxpayers contact Tax Ombudsman offices to get it resolved as in many cases problem relates to technical issues of data or system error. It is therefore.
A legacy system of STARR, which is a distributed database of tax regions and inter-jurisdiction transfer will require the transfer of data from one dataset to another data set with multiple errors and omissions further resulting in delays and technical errors. STARR manual system is not upgraded to handle transparent processing and is mostly dependent upon the processing auditors and has multiple issues due to issues with data synchronization gaps with the return system of IRIS.
FBR has not upgraded the Post refund audit system which is an integral part of Refund Processing and post-refund audit is managed manually as a result, the lack of deterrence through the post-refund audit system leaves the only option to restrict refund processing, the study added.
