Government fails to release exporters’ refunds in 3 days

FBR admits system is malfunctioning and has been shut for past 20 days

ISLAMABAD: The government failed to honour its commitment to pay sales tax refund to exporters within three days as the Federal Board of Revenue (FBR) on Thursday admitted that its system was malfunctioning and had been shut for the past 20 days.

The FBR made the admission before a special committee of the National Assembly Standing Committee on Finance that had been set up to find whether the FBR was making refund payments to the exporters or not.

Pakistan Tehreek-e-Insaf (PTI) MNA Dr Ramesh Kumar chaired the meeting, which was also attended by Pakistan Muslim League-Nawaz’s (PML-N) Dr Ayesha Ghaus Pasha.

The committee once again expressed its displeasure over the FBR’s failure to share details of top six recipients of sales tax refund, directing it to provide the information in the next meeting. The committee also directed the revenue board to come up with completion information about the outstanding refunds.

“There were problems in the system that forced us to shut it for 20 days,” acknowledged FBR Inland Revenue Operations chief Aamir Amin Bhatti.

Initially, Bhatti was reluctant to accept the fact that the FBR’s FASTER system was not functioning well.

FASTER system had been launched for prompt release of sales tax refund after the government withdrew the zero-rated facility provided to five export-oriented sectors and imposed 17% general sales tax (GST).

Prime Minister Imran Khan and Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh had promised to release tax refund within 72 hours of the issuance of refund payment order (RPO) to the exporter.

The FBR has failed miserably to improve the situation and textile exporters are still deprived of working capital, remarked Pakistan Textile Exporters Association Secretary General Azizullah Gohar.

Gohar said timely payment of sales tax refunds was still a major issue as despite all the commitments, the FBR had failed to make sales tax refunds to the zero-rated sectors within 72 hours through the FASTER system.

The RPOs that were issued in November, but were still not en cashed, were on account of GST paid in September, said Gohar. Exporters had exhausted their borrowing limits just to pay sales tax to the FBR instead of using the money for industrial purposes, he added.

Gohar said the processing of exporters’ refund claims had been stopped for the past 20 days due to a technical glitch in the FBR’s system. The FBR was still processing refunds for July 2019, he added. Payments against already generated RPOs have also been halted for the last one month. Key reasons behind the delay in releasing refunds were the wrong sequencing of reforms and the FBR’s move to hold refunds to inflate its tax collection, said Dr Ayesha Ghaus Pasha.

“The government should not have withdrawn the zero-rated facility for the export-oriented sectors before making its automated tax refund system fully functional,” remarked Pasha.

Against an average of 2,200 refund claims, so far only 500 claims had been received for December 2019, admitted the FBR chief operations.

Responding to a question, he said refund claims of commercial exporters could not be processed until the credit advice from banks was received from abroad.

Gohar said big refund claims were being declared deferred or missing on account of system flaws and procedural irritants whereas reprocessing of such claims was not allowed despite repeated commitments.

He said sales tax refund claims had crossed billions of rupees since the launch of FBR’s new system as more than 50% refund claims of textile exporters submitted from July 2019 onwards were still stuck and the exporters were facing severe financial hardships.

In the sales tax refund regime, around Rs10 billion of textile exporters had been pending under Section 66 since 2014 whereas payment of Rs30 billion was being deferred since 2012.

Similarly, around Rs20 billion was pending on account of customs duty drawback for 13 months whereas Rs10 billion had been pending against income tax refund since 2015-16, Rs15 billion had been pending against income tax credit under Section 65 B&E since 2010 and Rs5 billion had been outstanding on account of provincial sales tax since 2013. In order to address the refund issues of small and medium enterprises, a separate clearing system will be set up by March 20 to clear up to Rs1 million worth of refund claims, said FBR Member Operations Seema Shakil.

“If commercial exporters file claims for pending refunds, the Regional Tax Office Faisalabad opens audit cases,” alleged All Pakistan Textile Processing Mills Association Chairman Ehtisham Javed.

Shakil said the FBR was clearing only FASTER-related refunds at the headquarters level and the remaining refund cases were dealt with by the field offices.

Field officers were harassing the taxpayers because they were under pressure to meet their targets, said Kumar.

He expressed displeasure over the FBR’s inability to share details of top refund recipients. Shakil said under the confidentiality clause the FBR could not share the names.

Published in The Express Tribune, March 6^th, 2020.

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