Tax refund claims surge to Rs348b
External audit required to determine exact quantum due to claims and counter claims
The FBR also faces a genuine issue of non-verifiable claims. PHOTO: FILE
ISLAMABAD:
The income tax refund claims have surged to a record Rs348 billion or 9% of last year’s tax collection as taxpayers have been waiting for the past many years to receive their due refunds, reveal statistics of the Federal Board of Revenue (FBR).
Just like the Rs2 trillion circular debt in the energy sector, the unpaid tax refunds have become another headache for the government which now require an external audit to determine the exact quantum due to claims and counter claims. Prime Minister Imran Khan recently directed to clear Rs50 billion legacy income tax refunds. But the Rs50-billion figure is just 14.4% of the outstanding claims of income tax refunds.
The outstanding income tax refund claims from 2014 to end March 2020 stood at Rs348 billion, according to the FBR’s data.
However, tax authorities insist that these claims have not yet been verified by the FBR and some of the claims might have been adjusted against other tax liabilities. It officially recognises claims worth only Rs88 billion where the refund orders have also been issued.
The FBR does not know how much of the amount is adjusted against taxpayers’ other obligations and what are the net outstanding income tax refund claims. Historically, the FBR has been blocking taxpayers’ refunds to inflate its revenues. The situation warrants an independent external audit to determine the exact quantum of taxpayers’ refunds particularly at a time when individuals and companies are in dire need of their hard-earned cash due to Covid-19’s damaging impact on their earnings. The FBR’s record showed that Rs348 billion income tax refund claims remain outstanding in nearly 110,000 cases since 2014 when people started filing their claims electronically. The amounts that were due before 2014 have not been included in the Rs348 billion figure.
Dozens of companies have approached high courts and the Supreme Court of Pakistan seeking their intervention for relief. In addition to that, thousands of cases are pending for a decision by the Appellate Tribunals.
This week, the Supreme Court of Pakistan announced a judgment and decided that the taxpayer can seek compensation from the FBR from the date the FBR issues a refund order. However, the FBR takes months and in cases years before it issues an order to pay back refunds.
During the last fiscal year 2018-19, the FBR had collected Rs3.829 trillion in taxes, however, tax revenue is expected to remain around Rs3.9 trillion this year due to FBR’s inability to improve its performance and adverse impacts of Covid-19 on businesses.
The Rs348 billion gross income tax refund claims translate to around 9% of last fiscal year’s collection. By excluding the income tax refund claims, the FBR’s last year’s total collection will slip below Rs3.5 trillion or 9.1% of nation’s gross domestic product (GDP).
Hundreds of billions of rupees in sales tax refunds are in addition to this amount.
The FBR’s record showed that nearly 1,650 cases of refund claims were unpaid by large taxpayer unit (LTU) Karachi. For instance, United Energy Pakistan Limited has filed Rs18 billion worth of claims, Sui Southern Gas Company Limited has filed Rs16.4 billion worth of claims, National Bank of Pakistan has a claim over Rs9.2 billion refunds. The Indus Motor Company claims Rs1.4 billion refunds.
The FBR’s act of withholding taxpayers’ genuine refunds also deprives their shareholders and is also in violation of many regulations of the Securities and Exchange Commission of Pakistan.
The LTU-II Karachi has not decided 1,262 cases since 2014, the LTU Lahore has kept 603 large taxpayers cases pending since 2014 and LTU Islamabad has not decided 350 cases. The PTCL has submitted claims for Rs6.2 billion refunds, OGDCL has filed Rs18.5 billion worth income tax refund claims before LTU Islamabad, the China State Construction Engineering Company has filed Rs3.1 billion claim in 2017.
The Regional Tax Office Faisalabad has not decided the fate of 6,520 refund cases since 2014, about 4,835 income tax refund claims cases are pending before small RTO like Bahawalpur.
In a briefing to the National Assembly Standing Committee on Finance, FBR Member Inland Revenue Operations Seema Shakil said this week that that FBR has divided the income tax refund claimants in two categories. She said that in the first category, those taxpayers are included whose income tax refunds claims are up to Rs5 million and in second category, those are included whose claims fall between Rs5 million to Rs50 million. She stated that once these taxpayers update their International Bank Account Number (IBAN), the FBR would release Rs15 billion to them. She further told the standing committee that the remaining amount, owed to people who have Rs50 million above claims, will be released only when the money would be available.
FBR’s reply
The refund of income tax has different connotations and the database has refund claims as per returns, said FBR spokesperson Dr Hamid Ateeq Sarwar. He said that post refund claims, there are several actions that take place like adjustment of refunds against demands and advance tax, self-adjustment of refunds by taxpayers in subsequent returns, deletion of refunds as a result of audit, restoration of refunds in appeals, deletion of refund because of non-verification.
Sarwar said that the claimed amount in returns have no relevance with the refund stock.
The FBR is developing a system for live record of all changes in refund stock by July 1, 2020, said the spokesman. Sarwar said that outstanding refunds where the FBR has issued orders to make payments stood at Rs88 billion at the start of this fiscal and the entity has so far cleared Rs73 billion till March.
However, Sarwar did not comment on the fate of hundreds of billions of income tax refund claims that have been filed and the FBR has not issued their respective refund orders. This helps FBR to show these refunds as part of collection and also avoid compensation payments. This is also manifest from yet another FBR office order that it issued last week for processing of tax refunds under the PM package.
The FBR also faces a genuine issue of non-verifiable claims. Various government departments deduct withholding taxes and then deposit in the kitty without identifying individuals. Bank interest deduction is not verifiable by system.
The spokesperson said that the FBR was proposing changes in section 148 and tax credits to stop inflow of refunds and a computerised ledger of each taxpayer will also be maintained to address this issue.
Published in The Express Tribune, April 26th, 2020.
The income tax refund claims have surged to a record Rs348 billion or 9% of last year’s tax collection as taxpayers have been waiting for the past many years to receive their due refunds, reveal statistics of the Federal Board of Revenue (FBR).
Just like the Rs2 trillion circular debt in the energy sector, the unpaid tax refunds have become another headache for the government which now require an external audit to determine the exact quantum due to claims and counter claims. Prime Minister Imran Khan recently directed to clear Rs50 billion legacy income tax refunds. But the Rs50-billion figure is just 14.4% of the outstanding claims of income tax refunds.
The outstanding income tax refund claims from 2014 to end March 2020 stood at Rs348 billion, according to the FBR’s data.
However, tax authorities insist that these claims have not yet been verified by the FBR and some of the claims might have been adjusted against other tax liabilities. It officially recognises claims worth only Rs88 billion where the refund orders have also been issued.
The FBR does not know how much of the amount is adjusted against taxpayers’ other obligations and what are the net outstanding income tax refund claims. Historically, the FBR has been blocking taxpayers’ refunds to inflate its revenues. The situation warrants an independent external audit to determine the exact quantum of taxpayers’ refunds particularly at a time when individuals and companies are in dire need of their hard-earned cash due to Covid-19’s damaging impact on their earnings. The FBR’s record showed that Rs348 billion income tax refund claims remain outstanding in nearly 110,000 cases since 2014 when people started filing their claims electronically. The amounts that were due before 2014 have not been included in the Rs348 billion figure.
Dozens of companies have approached high courts and the Supreme Court of Pakistan seeking their intervention for relief. In addition to that, thousands of cases are pending for a decision by the Appellate Tribunals.
This week, the Supreme Court of Pakistan announced a judgment and decided that the taxpayer can seek compensation from the FBR from the date the FBR issues a refund order. However, the FBR takes months and in cases years before it issues an order to pay back refunds.
During the last fiscal year 2018-19, the FBR had collected Rs3.829 trillion in taxes, however, tax revenue is expected to remain around Rs3.9 trillion this year due to FBR’s inability to improve its performance and adverse impacts of Covid-19 on businesses.
The Rs348 billion gross income tax refund claims translate to around 9% of last fiscal year’s collection. By excluding the income tax refund claims, the FBR’s last year’s total collection will slip below Rs3.5 trillion or 9.1% of nation’s gross domestic product (GDP).
Hundreds of billions of rupees in sales tax refunds are in addition to this amount.
The FBR’s record showed that nearly 1,650 cases of refund claims were unpaid by large taxpayer unit (LTU) Karachi. For instance, United Energy Pakistan Limited has filed Rs18 billion worth of claims, Sui Southern Gas Company Limited has filed Rs16.4 billion worth of claims, National Bank of Pakistan has a claim over Rs9.2 billion refunds. The Indus Motor Company claims Rs1.4 billion refunds.
The FBR’s act of withholding taxpayers’ genuine refunds also deprives their shareholders and is also in violation of many regulations of the Securities and Exchange Commission of Pakistan.
The LTU-II Karachi has not decided 1,262 cases since 2014, the LTU Lahore has kept 603 large taxpayers cases pending since 2014 and LTU Islamabad has not decided 350 cases. The PTCL has submitted claims for Rs6.2 billion refunds, OGDCL has filed Rs18.5 billion worth income tax refund claims before LTU Islamabad, the China State Construction Engineering Company has filed Rs3.1 billion claim in 2017.
The Regional Tax Office Faisalabad has not decided the fate of 6,520 refund cases since 2014, about 4,835 income tax refund claims cases are pending before small RTO like Bahawalpur.
In a briefing to the National Assembly Standing Committee on Finance, FBR Member Inland Revenue Operations Seema Shakil said this week that that FBR has divided the income tax refund claimants in two categories. She said that in the first category, those taxpayers are included whose income tax refunds claims are up to Rs5 million and in second category, those are included whose claims fall between Rs5 million to Rs50 million. She stated that once these taxpayers update their International Bank Account Number (IBAN), the FBR would release Rs15 billion to them. She further told the standing committee that the remaining amount, owed to people who have Rs50 million above claims, will be released only when the money would be available.
FBR’s reply
The refund of income tax has different connotations and the database has refund claims as per returns, said FBR spokesperson Dr Hamid Ateeq Sarwar. He said that post refund claims, there are several actions that take place like adjustment of refunds against demands and advance tax, self-adjustment of refunds by taxpayers in subsequent returns, deletion of refunds as a result of audit, restoration of refunds in appeals, deletion of refund because of non-verification.
Sarwar said that the claimed amount in returns have no relevance with the refund stock.
The FBR is developing a system for live record of all changes in refund stock by July 1, 2020, said the spokesman. Sarwar said that outstanding refunds where the FBR has issued orders to make payments stood at Rs88 billion at the start of this fiscal and the entity has so far cleared Rs73 billion till March.
However, Sarwar did not comment on the fate of hundreds of billions of income tax refund claims that have been filed and the FBR has not issued their respective refund orders. This helps FBR to show these refunds as part of collection and also avoid compensation payments. This is also manifest from yet another FBR office order that it issued last week for processing of tax refunds under the PM package.
The FBR also faces a genuine issue of non-verifiable claims. Various government departments deduct withholding taxes and then deposit in the kitty without identifying individuals. Bank interest deduction is not verifiable by system.
The spokesperson said that the FBR was proposing changes in section 148 and tax credits to stop inflow of refunds and a computerised ledger of each taxpayer will also be maintained to address this issue.
Published in The Express Tribune, April 26th, 2020.