FBR links tax refund payment to realization of export proceeds

FBR links tax refund payment to realization of export proceeds

ISLAMABAD: Federal Board of Revenue (FBR) on Thursday linked the issuance of refund payment to the realization of export proceeds.

In this regard the FBR issued Sales Tax General Order (STGO) No. 09 of 2023 regarding sales tax refund to manufacturers of five export oriented sectors (textile, carpet, leather, surgical and sports goods).

The FBR said that for refund claim of a commercial exporters, the payment of such refund shall be made after the realization of export proceeds.

After abolition of zero-rated tax regime under SRO 1125(l)/2011 dated December 31, 2011, purchases (whether through imports or domestic supplies) in textile sector were subjected to sales tax at 17 per cent on and the inputs consumed in exported goods, thus, became liable to be refunded to the exporters. In order to facilitate the cash flow requirements of export-oriented sectors particularly textile exporters, an automated Sales Tax e-Refund System (FASTER) was introduced to process and sanction exporters’ refunds expeditiously.

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However, it continued to malfunction on multiple counts producing suboptimal outcomes and was found deficient in effectively analyzing the admissibility of refund in relation to quantity and quality of inputs claimed by the taxpayers, resulting in allowing portion of refund relating to such inputs which otherwise were not liable to be allowed either on the basis of excess consumption or otherwise being inadmissible under the law.

These system glitches created problems for exporters in terms of uncertainty and stuck-up liquidity, and for the tax administration in terms of credibility deficit.

Hence, in order to ensure certainty, transparency and truthfulness in processing of sales tax refunds across-the-board and issuance of valid and legitimate refunds to the exporting units, and also to safeguard the government revenue, FBR has decided to upgrade the automated system by incorporating benchmarks and input/output ratios which were finalized after due deliberations made with members from Customs authorities, Textile Exporters Association of Pakistan, Hosiery Manufacturer Association, IOCO Directorate, Consultants on Textile Sector study and Inland Revenue officers.

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Therefore, Federal Board of Revenue is pleased to make following alterations in fully automated system-FASTER.

(i) Value addition check shall be 15 per cent both for exports and local supplies for filing of Annex-H for current tax period.

(ii) The total amount of refund paid against the claims filed and processed shall not exceed the lower of the two amounts, namely, the amount of input tax actually consumed in goods as exported/supplied at zero-rated rate, or 12 per cent o of the exports.

(iii) Inadmissible inputs in terms of Section 8 of the Sales Tax Act, 1990 shall not be allowed during processing of refunds through FASTER.

(iv) Input tax adjustment shall not be allowed to the manufacturers of these sectors on the goods which are not related to their business activity. The negative list of such unrelated goods is annexed;

(v) The suppliers who have attained status of abnormal tax profile or blacklisted shall not be processed by automated system FASTER. In addition to the checks/risk parameters already implemented through FASTER, the following risk parameters shall be applied in the automated refund processing system;

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Risk Parameters:

i. FASTER shall defer proportionate input tax refund against export GD under objection.

ii. Logical check shall be enabled in system to cross match the date of export GD with the date of purchase invoices.

iii. Total amount of refund sanctioned and refund deferred shall not exceed the total amount of refund claim.

iv. First claim of refund by newly-registered exporters for first twelve months shall be excluded from FASTER and be processed through STARR / ERS.

v. Refund claim once excluded from FASTER shall not be allowed to roll back. It shall be processed only through STARR / ERS;

vi. For refund claim of a commercial exporters, the payment of such refund shall be made after the realization of export proceeds.

vii. Refund to the exporters against fixed assets shall not be processed through FASTER and shall be paid after verification of installation/utilization by the field formations.

viii. Expenses incurred on utilities shall be prorated on the basis of consumption between zero rated supplies and domestic sales.

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The FBR said it would shall add or delete or modified the Annexures or conditions / benchmarks mentioned therein as and when deemed necessary after recommendations ofthe field formations holding jurisdiction over the export-oriented sectors.

It further said that the s issues with the approval of the competent authority, Member lR-Operations, FBR, Islamabad and shall be applicable with effect from the return filed in the Month of March 2023.