KCCI Suggests Adjusting Refunds against Sales Tax Liability

KCCI Suggests Adjusting Refunds against Sales Tax Liability

Karachi, May 18, 2024 – The Karachi Chamber of Commerce and Industry (KCCI) has proposed that the Federal Board of Revenue (FBR) permit the adjustment of sales tax refunds against sales tax liabilities to address significant delays in payments.

In its budget proposals for the fiscal year 2024-25, KCCI highlighted the pressing issue of delayed sales tax refunds, which has become a critical concern for industries nationwide. These delays predominantly affect large-scale manufacturing units that serve both export and local markets. The KCCI reported numerous cases where sales tax refunds exceeding PKR 100 million remain unpaid, exacerbating financial strain on businesses.

The backlog of unpaid sales tax refunds is accumulating daily, creating an unmanageable situation for both taxpayers and the FBR. The immediate consequence of these delays is a severe liquidity crunch for the impacted businesses. Companies are struggling to reinvest this crucial capital into their operations, stunting their growth and development. Concurrently, the FBR faces increasing challenges in managing this growing backlog, complicating the financial landscape for the government and industries alike.

The KCCI outlined several recommendations to mitigate these issues:

1. Designated Officer for Sales Tax Refunds: The KCCI suggested the appointment of a dedicated officer specifically tasked with managing sales tax refunds. This centralization aims to streamline the refund process, ensuring greater transparency and efficiency. A designated officer could expedite the handling of refunds, thereby easing the financial burden on industries resulting from prolonged delays.

2. Adjustment Against Sales Tax Liability: To provide immediate relief, the KCCI proposed allowing large-scale manufacturing units to adjust their outstanding sales tax refunds against their sales tax liabilities or other charges incurred during the importation of machinery. This policy adjustment would not only reduce the government’s liability but also free up much-needed capital for industries. This could significantly boost industrial growth, as the capital could be reinvested into the businesses, promoting further development and expansion.

3. Expedited Refund Mechanism for Export-Oriented Units: Special consideration should be given to export-oriented units, which are vital for the country’s foreign exchange earnings. The KCCI recommended an expedited refund mechanism for these units to ensure they remain competitive in the global market. Quick processing of refunds for these businesses could enhance their operational efficiency and global competitiveness.

4. Utilization of Technology for Transparency: The KCCI also emphasized the importance of leveraging technology to enhance the transparency and efficiency of the refund process. Implementing a digital tracking system for refund applications could provide real-time updates to taxpayers, reducing uncertainty and building trust in the system.

The KCCI stressed that implementing these recommendations would alleviate the financial strain on businesses and streamline the refund process, contributing to a healthier economic environment. The ability to adjust refunds against liabilities could be a significant relief for industries, enabling them to overcome liquidity challenges and reinvest in their operations.