The federal government has blocked payment of verified tax refund claims to inflate its revenue collection to meet the target, a move that puts a question mark over claims of receiving Rs2,103 billion in taxes in the past nine months.
From July through March 2015-16, only Rs47 billion has been refunded, which is roughly 10% or Rs5 billion less than the corresponding period of previous fiscal year, according to documents of the Federal Board of Revenue (FBR). In March, the FBR released Rs5 billion in tax refunds.
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The Ministry of Finance boasts that the FBR has displayed exceptional performance and collected Rs2,103 billion in taxes in nine months (July-March), a 19.7% increase compared to the same period of previous fiscal year.
According to an understanding reached with the International Monetary Fund (IMF), the FBR was supposed to collect Rs2,105 billion by the end of March 2016.
Sources in the FBR said Finance Minister Ishaq Dar knew about the delay in refund payments as the government’s prime objective was to meet the revenue target.
Exporters are agitating against the blocking of tax refunds and are seeking intervention of the prime minister. However, the government has not done anything concrete so far to address their concerns.
“The government is quick in giving orders for clearance of refund claims but it blocks the release of cheques, partially to meet the tax target and partially because of corrupt people in the FBR who demand bribe,” a leading industrialist said.
In March, the refund payments were flat at Rs5 billion compared to March last year, suggesting that not all the Rs296-billion tax collection in the month was government’s revenue.
The business community argues that their working capital, especially of small manufacturers, is stuck in refund claims.
In the last six months, the FBR made just Rs17 billion refund payments, which were 45% less than the same period of previous fiscal year.
FBR spokesman Dr Mohammad Iqbal said the July-March refund figure had not been finalised yet, although he acknowledged the payments were less than what should have been ideally.
“The refunds payments in this year would stand at Rs49 billion by end March” insisted Dr Iqbal.
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There is a need to conduct an audit of tax receipts in order to arrive at the exact figure, suggest independent experts. The verified outstanding tax refunds have surged to Rs240 billion, which is included by the FBR in its revenue collection.
The Federal Tax Ombudsman has recently constituted a committee to determine the exact tax refund claims and recommend a future course of action. The committee may propose interest payment to the taxpayers on delayed refunds and disciplinary action against the officers for blocking the refunds, a committee member said.
In September last year, the outstanding sales tax refund claims numbered 135,780 valuing Rs118.5 billion.
The evasion of sales tax is worse than income tax. Against 190,360 registered sales tax taxpayers comprising individuals and companies, only 118,578 file tax returns. Of these, 37,655 contributed to the national exchequer.
For the last three years, the number of registered sales tax contributors is on the decline.
FBR Chairman Nisar Muhammad Khan claimed that revenues had shown an impressive growth despite a massive fall in international oil prices, implying an impressive performance on part of the tax machinery. However, the development has come on the back of higher tax rates that have denied consumers the full benefit of the fall in oil prices.
Despite a 30% drop in the value of petroleum product imports, tax receipts from these products rose to Rs275.6 billion from July to February, up Rs51.3 billion or 22.9% from last year.
The IMF has now asked the government to start publishing the outstanding tax refund claims and step up the processing of sales tax refund. It suggests that the stock of refunds should not be more than the three-month flow of claims, which is roughly Rs20 billion.
Published in The Express Tribune, April 7th, 2016.
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