Ombudsman orders FBR to eliminate systemic flaws in the FASTER refund system, ensure proportionate refund deferment and submit a compliance report within 60 days.
KARACHI: The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to immediately rectify a systemic flaw in its FASTER sales tax refund system after finding that the issue was causing unlawful delays in processing refund claims of exporters.
The directive was issued through a consolidated order on two complaints filed by M/s Quality Towellers, which highlighted that the FASTER system was unable to distinguish between commercial export Goods Declarations (GDs) and non-commercial sample export GDs. As a result, the system was deferring the entire carry-forward refund amount instead of withholding only the proportionate amount required under the law.
Exporters faced refund delays
According to the FTO, the complainant argued that non-commercial sample export GDs, which do not require realization of export proceeds and are not qualify for sales tax refunds, were being incorrectly treated as commercial export GDs.
The Ombudsman noted that the IRIS system automatically populates all export GDs in the sales tax return. Although taxpayers can initially de-link non-commercial sample GDs, the system does not allow submission of the return unless those GDs are re-linked, rendering the de-linking option ineffective.
Consequently, the FASTER system raises the objection “GD Not Realized”, forcing refund claims into manual processing instead of the automated refund mechanism envisaged under the law.
PRAL explains system limitation
During the proceedings, Pakistan Revenue Automation Limited (PRAL) informed the Ombudsman that the IRIS system merely receives export GD data from Pakistan Customs and has no authority to alter or correct the information.
PRAL maintained that any inaccuracies relating to GD attribution or parcel-level details originate from Pakistan Customs and can only be rectified through Customs’ amendment procedures.
It further stated that any modification to the FASTER system would require an approved Change Request Form (CRF) processed through the FBR’s Domain Team.
FTO identifies systemic loophole
After reviewing the record, the Federal Tax Ombudsman concluded that the FASTER system currently lacks the ability to distinguish between commercial export GDs and non-commercial sample export GDs.
The Ombudsman observed that this deficiency results in the unlawful deferment of the entire refund amount instead of only the proportionate input tax associated with the disputed GD, contrary to Sales Tax General Order (STGO) No. 09 of 2023 and the provisions of Sections 7 and 10 of the Sales Tax Act, 1990.
The order described the issue as a systemic flaw affecting exporters and undermining the objective of the automated refund mechanism.
FBR ordered to implement system changes
The FTO directed the Inland Revenue and Customs Operations Wings of the FBR to jointly address what it termed a “systemic and hazardous loophole” affecting Pakistan’s export sector.
The Ombudsman instructed the FBR to:
• Prepare a Change Request Form (CRF) in consultation with the Customs Wing.
• Modify the FASTER system to identify and recognize non-commercial and sample export GDs.
• Prevent the system from incorrectly generating the “GD Not Realized” objection against such GDs.
• Ensure that only the proportionate input tax refund linked to the disputed GD is deferred in accordance with STGO No. 09 of 2023.
• Ensure that where no refund has been claimed in the sales tax return, the system does not defer any amount.
• Submit a compliance report to the FTO within 60 days.
Relief for exporters
The ruling is expected to provide significant relief to exporters by eliminating unnecessary delays in automated sales tax refunds and improving the efficiency of the FASTER refund system.
By addressing the identified system deficiency, the FTO said the FBR can ensure that legitimate refund claims are processed promptly while maintaining compliance with the applicable provisions of the Sales Tax Act and related administrative orders.