Karachi, December 5, 2023 – The Federal Board of Revenue (FBR) has announced a significant policy shift regarding delayed sales tax refunds, introducing an additional compensation mechanism tied to the Karachi Interbank Offered Rate (KIBOR).
The move comes as part of the FBR’s efforts to streamline and expedite the refund process, providing relief to businesses facing delays in reimbursement.
The FBR’s decision is embedded in the updates made to the Sales Tax Act, 1990, specifically targeting the tax year 2024. Under the revised provisions, taxpayers awaiting sales tax refunds will be entitled to receive an extra amount equivalent to KIBOR per annum for the duration of the delay.
Section 67 of the Sales Tax Act, 1990, addresses the payment for delayed refunds, outlining the new compensation structure. The section states:
“Delayed Refund.– Where a refund due under section 10 is not made within the time specified in section 10 from the date of filing of the refund claim, there shall be paid to the claimant in addition to the amount of refund due to him, a further sum equal to KIBOR per annum of the amount of refund due, from the date following the expiry of the time specified as aforesaid, to the day preceding the day of payment of the refund.”
The provision is designed to incentivize timely processing and disbursement of sales tax refunds, ensuring that businesses do not face undue financial strain due to delays in reimbursement.
However, the amendment also includes safeguards to prevent potential misuse of the compensation mechanism. The first proviso stipulates that if there is reason to believe that a person has claimed a refund that is not admissible, the payment of the additional amount linked to KIBOR will not apply until the investigation is completed, and the claim is either accepted or rejected.
The second proviso addresses situations where a refund is due as a result of an order passed under section 66. If such a refund is not made within forty-five days of the date of the order, the claimant will be entitled to receive a further sum equal to KIBOR per annum of the refund amount due from the date of the refund order.
The FBR’s move is welcomed by businesses and taxpayers, providing a financial buffer for delays in the refund process and promoting a more efficient and accountable tax administration system. As the new provisions take effect for the tax year 2024, businesses are advised to stay informed about the changes and leverage their rights under the updated Sales Tax Act, 1990, for a smoother and more predictable financial landscape.
