FBR’s tax refunds swell to Rs578 billion

Authority has yet to clear income tax refunds of up to Rs50m as per Hafeez Shaikh’s directive

ISLAMABAD:

The Federal Board of Revenue (FBR) has admitted in a closed-door meeting that the quantum of refund claims has increased to Rs578 billion by June. This figure is contrary to the public statement that showed just Rs232 billion in outstanding tax refunds.

Not only that, the FBR has also flouted Finance Adviser Dr Abdul Hafeez Shaikh’s instructions of April 16 to clear income tax refunds of up to Rs50 million of 100,000 taxpayers within one week. That one week never came in the past four months.

The FBR on Monday briefed some federal ministers that the quantum of income tax, sales tax and customs duty refunds surged to Rs578 billion as of June this year, according to the presentation seen by The Express Tribune.

Sales tax refunds were shown at Rs142 billion while the income tax refund claims were Rs436 billion.

The Express Tribune contacted the FBR chairperson for comments and the response was awaited till the filing of the story. Contrary to these figures, an FBR statement issued after the meeting stated, “The meeting was informed that a total of Rs142 billion of sales tax refunds were pending and Rs90 billion of income tax refunds were due for payment.”

The Rs90-billion income tax refunds are being assessed without any scientific base or on the basis of documentation. Rather, they are based on the back of the envelope assessment that only up to 20% income tax refunds are issued against the claims, said the sources.

The issue of taxpayers’ refunds has remained a headache for every government. Although the FBR claims that it has increased sales tax refund payments in the past one year, this is because of ending zero-rating facility for textile exporters.

The meeting was informed that the stock of sales tax refunds of Rs142 billion remained unchanged but the income tax refund claims that stood at Rs421 billion a year ago increased to Rs436 billion by the end of June 2020. Customs duty-related refunds were less than Rs1 billion. The meeting, attended by Finance Adviser Shaikh, Commerce Adviser Abdul Razak Dawood, Industries Minister Hammad Azhar and National Assembly Standing Committee on Finance Chairman Faizullah Kamoka, took a detailed presentation on the status of tax refunds.

The meeting was informed that over 400 tax refund cases were stuck and as a remedy input adjustment may be discontinued in cases that were older than July 2019.

There were also some tense moments during the meeting as the FBR could not give a satisfactory response to Shaikh for flouting his orders to clear up to Rs50 million worth of income tax refunds within one week.

Shaikh had issued the instructions on April 16 - nearly four months ago - and the orders were repeated again in July, which the FBR management did not implement.

Clearance of up to Rs50 million worth of tax refunds of 100,000 taxpayers was part of the prime minister’s Covid-19 relief package. The government did take political benefit of the announcement. But these refunds never reached the beneficiaries, except for in a few cases that too became controversial due to allegations of kickbacks being received by some officers in the field, said the sources.

“The government has also decided to pay within next week all income tax refunds held back since 2014 and this measure alone will benefit nearly 100,000 taxpayers, who will be paid over Rs50 billion worth of refunds,” Shaikh added, according to an April 16 press release of the finance ministry. Again in July 2020, Shaikh directed the FBR to make payment of all income tax refunds of up to Rs50 million in the next couple of weeks while a clear roadmap and strategy may be adopted for the payment of remaining refunds.

“The government has a clear policy that all tax refunds, whether fresh or old, should be paid back without any excuse,” stated the finance ministry statement.

During Monday’s meeting, the sources said, Shaikh asked acting FBR chairman Javed Ghani who should be held responsible, if these refunds were still not issued. Ghani initially did not have a clear answer.

Shaikh then directed that responsibility should be fixed for flouting his orders in future, said the sources.

In fiscal year 2019-20, the total tax collection was Rs3.990 trillion and if Rs578 billion was excluded, the net collection stood at only Rs3.4 trillion. The Rs3.4-trillion was equal to just 8.2% of gross domestic product (GDP) of that fiscal year.

In order to further facilitate the business community and to resolve their day-to-day issues on priority, it was advised that a technical committee having representatives of the business community be formed to examine and resolve faster the refund-related issues. The name of Dr Waqar Masood Khan, former finance secretary, is being considered for heading the technical committee. Khan has also recently been appointed as head of the subsidies cell, set up in the Ministry of Finance.

Published in The Express Tribune, August 12^th, 2020.

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