Apropos an article “Of fudging and fraudulence’ published in Daily Times on October 1, 2017, a spokesman for the Finance Division has clarified that in order to promote the tax culture and dispel the general impression about escaping taxation by individuals having prominent positions in society, the FBR had undertaken an initiative for bringing a behavioural change in the society through the publication of the Tax Directory of the parliamentarians. The latest tax directory for the Tax Year 2016 incorporates the names of 1,010 parliamentarians out of a total of 1,170 who have duly filed their tax returns. The spokesman added that the FBR had not fudged figures in any case. Furthermore, these figures are authenticated and reconciled not only with the State Bank of Pakistan but also with the AGPR.
The FBR is trying to promote tax culture and taxpayer friendly environment in the country. It facilitates the taxpayers/refund claimants through speedy clearance of refunds. Overall tax refund claims have declined in the recent years. The pendency of total sales tax refund claims is to the tune of Rs. 124 billion, which is 3% of revenue target of Rs 4, 013 billion for the year 2017-18. The pendency as on July 1, 2013, was Rs 100 billion, which was 5% of the revenue target of Rs 2,007 billion for the year 2012-13. The comparison shows that since the present government took over in 2013, the refund pendency has decreased as percentage of revenue target.
It is added that in the current financial year 2017-18, a refund of over Rs 26 billion had been paid to sales tax registered persons, as per announcement of the minister for Finance and Revenue in the budget speech on May 26, 2017. It was announced that refund payment orders issued up to April 30, 2017, shall be paid in two stages, i.e. by July15, 2017 and August14, 2017, in respect of RPOs up to Rs. 1 million and above Rs 1 million, respectively. Total refund amounting to Rs 26,338 million on account of sales tax has been paid in the current financial year against 10,579 cases of exporters as well as non-exporters. Overall in the CFY 2017-18, a refund of Rs 41 billion has been paid against Rs 18 billion in PFY 2016-17 recording a substantial growth of around 120 percent.
The FRB denied that the finance minister somehow has a role in not allowing the FBR to issue refunds to taxpayers. “FBR enjoys full autonomy in running its operations and the matters of collection and refunds are not managed by the Finance Ministry. The FBR is performing its role as the premier revenue collecting agency of the country without any interference or micro-management by the Finance Ministry.”
The critics of the FBR on the issue of refunds need to realise that no tax system following VAT mode of collection of tax on goods and services can be free from refunds becoming due to the taxpayers. Similarly any income tax system that incorporates advance and withholding payments during the accounting year cannot preclude claim of refunds by the taxpayers. The efficiency and fairness of the system needs to be evaluated on the touchstone of whether the quantum of refunds is increasing or decreasing as a percentage of revenue collected over a period of time? It has also to be appreciated that no tax administration can accept the refund claims on their face value and go for immediate issuance of refunds as and when they are claimed. In order to preclude any loss to national exchequer through issuance of refunds and rebates that are not actually due the tax administration has to have in place an elaborate system of checks and verifications to ensure that the refunds are legally and factually due. Refunds have to be issued only after these processes are completed and the validity of the refund claims is established. This verification process requires submission of documents and information by the taxpayer as well. Delays are caused sometimes by the failure of the taxpayers not due to any fault of the department.
The reasons for outstanding refunds include the claims of refunds that have not been furnished on the prescribed software (RCPS) along with supportive documents within stipulated time and the claims that have been deferred/ withheld due to the legal objections raised by the Sales Tax Automated Refund Repository (STARR).
That the FBR’s refund payment system is working smoothly can be ascertained form the fact that the figure of outstanding refunds as a percentage of revenue has come down from the figure in 2012-13.
Moreover, no refunds are being withheld to artificially inflate the collection of FBR. If this were so the government would not have introduced the facility of zero-rating for the five export-oriented sectors, including textiles, carpets, leather, surgical and sports goods. This zero-rating would avert creation of Sales Tax refunds for the exporters and simultaneously eliminate the so-called leverage of withholding of refunds.
The spokesman clarified that no figure on account of statistical discrepancy has been included, printed and reported in the budget documents. All the budgetary documents are available on the website of the Finance Division for the information of general public.
Published in Daily Times, October 8th 2017.
