Sales tax refund cheques worth Rs420.8m distributed

Finance Minister distributes 168 cheques worth Rs420.8 million on account of sales tax refund amongst 41 claimants.

ISLAMABAD: Finance Minister Dr Hafeez Shaikh on Tuesday distributed 168 cheques worth Rs420.8 million on account of sales tax refund amongst 41 claimants.

Amongst the recipients was Shams M Haji, the owner of Pakistan Gum Industries, who managed to recoup Rs12 million in tax refunds from the Federal Board of Revenue (FBR) without any additional effort. Haji’s case is unique though, as the FBR was withholding millions as part of 31 different claims for his company.

“As many as 50,000 refund cases involving Rs40 billion are the main source of corruption in the Federal Board of Revenue,” said the minister for finance. He said that taxpayers are compelled to bribe FBR officials in order to get their cheques cleared. “The solution is automation and minimum contact with officials,” he added.

He also asked the FBR to give importance to honest taxpayers. He further requested the FBR to put forth a summary for reviewing the option of exposing tax dodgers to the media.

“Getting tax refunds without bribing an official is impossible and it is the reason that the FBR has withheld our cheques,” said Syed Shoaib, the office manager of Pakistan Gum Industries. He said that the FBR used to ask them to either give them a commission or to stay quiet.

Rampant corruption in the FBR is said to be one of the main reasons for the country’s lowest tax-to-GDP ratio in the world. It is generally believed that tax evasion occurs in connivance with FBR officials in most cases.

The World Bank estimates tax evasion at Rs796 billion, which is more than the development budget of the federal and provincial governments. The resultant deficit is then financed through borrowing.

An electronic refund system is considered to be the key to success for the reformed general sales tax regime that the government is going to implement in October. The integrated services involve refunds at various stages as the output of a producer becomes the input of the wholesaler.

FBR Chairman Sohail Ahmad said that refund claims have become a chronic problem and authorities have constituted two committees to clear the backlog within two months.

He admitted that “refunds should be given to taxpayers without putting them through needless pain”. The government’s decision to launch an expedited centralised refund system is a giant step towards the facilitation of taxpayers.

The government has launched a pilot project for fast track refund payments. After experimenting in Lahore, authorities have decided that manufacturers-cum-exporters would hereafter file refund claims electronically. Under the new system, cheques for the amount refunded would be issued from Islamabad.

Published in The Express Tribune, September 29^th, 2010.