Desperate measures: FBR blocks refunds, forces banks to pay advance tax

Has to collect Rs142b in last four days of current fiscal year.

ISLAMABAD:

Tax authorities are apparently set to play with figures for the second consecutive year in a bid to achieve the revenue target, as they have blocked release of Rs78 billion in refunds and forced banks to pay next fiscal year’s tax liabilities before the end of June.

The moves come in the wake of a shortfall faced by the Federal Board of Revenue (FBR) in meeting the tax target of Rs1.952 trillion. By June 26, the FBR had collected Rs1.81 trillion, leaving it with a gigantic task to collect Rs142 billion in the remaining four days of the current fiscal year, according to the FBR.

Sources in the FBR told The Express Tribune that the authorities were not only blocking refunds but were also avoiding liability by delaying acceptance of the decisions of tribunals and appellate benches in tax refund disputes involving billions of rupees.

“The head office has verbally directed chief commissioners to stop the clearance process,” a source said.

In an example, MCB Bank has won a case of Rs4 billion against the FBR, but the revenue board was not accepting the judgment, according to an official familiar with the matter.

Sources said the FBR has also asked automobile companies not to claim input tax adjustments for June and delay these to next month.

The government’s inaction against officials involved in figure fudging last year is said to be one of the reasons which have encouraged the FBR to repeat the episode. Last year, the FBR took Rs42 billion in tax advances to achieve the Rs1.588 trillion target.

When approached, FBR’s spokesperson Riffat Shaheen Qazi promised to respond to the query of blocking Rs78 billion in refunds. However, till the filing of the report, she did not respond.

Advance tax

According to sources, the FBR has also managed to convince the central bank to issue a circular, asking banks to give profit to their account holders in June instead of July and deposit the tax on profit before the end of the month.

In a circular issued on June 11, all banks have been advised that “withholding tax on profits paid by banks, DFIs (development finance institutions) and MFBs (microfinance banks) to the depositors should be transferred to the FBR account before the close of financial year.”

Banks have been forced to work out profit even before the close of books, which is against established banking practices, sources said. The SBP’s circular is also against FBR’s rules that allow banks to deposit withholding tax within seven days after the close of books. Banks usually close their accounts on July 1 and deposit the tax before July 10, which falls in the new fiscal year.

The FBR expects to receive Rs5.5 billion to Rs6 billion on this account. Only Bank Al Habib will pay Rs350 million before June 30, according to an official involved in this transaction.

Commenting on the matter, SBP chief spokesman Syed Wasimuddin said: “The circular letter merely requires banks to put in place appropriate procedures for timely credit of tax receipts, which is our national responsibility. Since banks collect withholding tax on many transactions other than profit on deposits, they were advised to deposit the same in a timely manner.

“In only those cases where banks pay profit on June 30, they have been advised to deposit the related WHT on the same day. In other cases, banks will pay profit as per their well defined procedures.”

Facilitating criminals

In another attempt to reach the tax target, the FBR has offered amnesty even in criminal cases like fake sales tax refund.

On Wednesday, it issued a notification, waiving the default surcharge and penalties payable on outstanding illegally adjusted input tax provided 25% of the principal amount of illegally adjusted sales tax is paid by June 30. The remaining 75% will be paid in five equal monthly installments by December this year.

Published in The Express Tribune, June 28^th, 2012.