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Tag: sales tax refund

  • FBR suggested to abolish tax refund culture

    FBR suggested to abolish tax refund culture

    KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish tax refund culture and bring down sales tax at five percent.

    Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021 suggested that the culture of refunds should be abolished and government should collect GST at the rate of 5 percent.

    “It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities,” the FPCCI said.

    The apex trade body said that the reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase.

    It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities.

    The FPCCI highlighted the present structure of taxation policies in Pakistan.

    Here, it is noteworthy that inducement of private investment particularly foreign direct investment is the only feasible option to develop the badly deteriorated infrastructure in Pakistan.

    Greenfield investment and capitalization of the savings of expatriate Pakistanis are also included in this program.

    FPCCI proposed fiscal policy, while revival strategy will be based on foreign investment. It is unfortunate that tax rates in Pakistan are considered as major hurdle in investment.

    Tax and contribution as percentage of Gross profit is 33.9 percent in Pakistan, while it is 49.7 percent in India, 38.7 percent in Malaysia, 36.6 percent in USA, and 33.4 percent in Bangladesh.

    The average tax rate on corporate sector in Pakistan is 29 percent; it is 25 percent in India, 24 percent in Malaysia, and 21 percent in USA.

    It is important to note that tax system in Pakistan emphasizes on indirect taxes and surcharges. The share of direct taxes in government revenue is around 37 percent in Pakistan, 47 percent in India, 46 percent in Malaysia, 38 percent in UK and 50 percent only in USA.

    The lower share of direct taxes is because of exemptions and less e orts for tax collections from agriculture, services, real estates and retail trading activities.

    This situation leads to dependency on indirect taxes. The indirect taxes hampered the industry in many ways: they increase the cost of production and reduce the demand for manufacturing products, because of higher market prices of those products by inclusion of sales tax. By such a manner, they damage the industrial competitiveness and induce the inflation in economy.

    The FPCCI has recommended the shifting of dependency from indirect to direct taxes. We strongly recommend the reduction rate of sales tax to provide relief to the general public.

    This step will improve the buying power of general public and will help the industry in revival process and accelerate the investment in the country.

    It is extremely important for the survival of Pakistan economy at this stage. The reduction in the rate of GST is proposed on the basis of expected enhancement in revenue because of enhanced economic activities.

    To increase its revenue government should not depend on indirect taxation. This approach leads the poverty and inflation. We should encourage revenue enhancement through direct taxation on equity and egalitarian basis.

    Tax should be paid according to the magnitude of earning regardless the source of earning.

    To accelerate economic activities and improving efficiencies, the FPCCI suggests reduction in the rate of GST.

    This is the pivotal point of our taxation policy. A solution of containing the ongoing unsettled business environment is imperative. The present ongoing conflicts and contradictions has reduced the sales and as well as have chocked the sales points and agents of sales. The re-initiation efforts of FPCCI towards saleable policy objective of fixed sales system may find a substitute of settlement of ongoing disputed business environment.

    The reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase. The sources of FBR have been indicating the effective tax rate of GST is less than 5 percent, which indicate that 71 percent of total collection of sales tax has to pay back in account of input adjustment and refund claims.

    The FPCCI in 2014 took-up a subject of fixed sales tax regime, which attended the influence level and even the then Finance Minister conceded to consider the same during his tenor as the document, submitted by FPCCI, concluded towards the objective that the collection would increase and not decrease by promoting business conducting environment through fixed sales tax regime.

    This will provide demand supported production environment for manufacturing. It will improve the collections and settle the disputed business environment.

  • Tax refunds should be adjustable against liability recommended

    Tax refunds should be adjustable against liability recommended

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended inter adjustment of income tax and sales tax refunds should be made part of the law.

    In its recommendations for budget 2020/2021, the representative body of foreign investors and multinational companies working in Pakistan, highlighted the issue of delay and procedural hassle in processing of outstanding refunds.

    It said that protracted delays in settlement of tax refunds is one of the biggest contributors in distorting the commercial image of Pakistan in all the perception and ease of doing business surveys and a major factor negatively impacting inflow of Foreign Direct Investment (FDI) in the country.

    This has been regularly pointed out at the relevant forums, including to the Prime Minister and Minister of Finance, the OICCI added.

    Moreover, through Finance Act, 2019, government has introduced refund bonds for the settlement of long outstanding income tax refunds.

    These refunds bonds have maturity of three years with 10 percent simple interest per annum payable at maturity.

    “As of February 2020, tax refunds pending of OICCI members aggregated to Rs86 billion, which remained unsettled for a very long time, some of which are pending prior to 2005.”

    However the refunds process is still long drawn and refunds of many companies have not been processed for many years although Federal Board of Revenue (FBR) already has information readily available on the system.

    Furthermore, despite specific directions in the Income Tax Ordinance, 2001, fair mechanism of issuance of government bonds in lieu of income tax refunds is not provided yet and where issued, these bonds are neither being traded freely in the market nor being discounted by the banks mainly due to low interest versus current prevailing discount rate.

    The OICCI recommended following:

    All pending tax refund be cleared within next six months in an orderly/ prearranged manner.

    Verification process for refunds should start automatically as soon as an application for refund is filed by the taxpayer and tax refunds be cleared within 45 days.

    A timely settlement of the determined refunds should be made, and if there is a liquidity issue then issuing marketable Government bonds/securities be considered.

    Amend current fixed interest rate of 10 percent to floating interest rate linked with KIBOR.

  • Rs100 billion released for tax refunds, duty drawback repayments

    Rs100 billion released for tax refunds, duty drawback repayments

    ISLAMABAD: In a bid to alleviate liquidity challenges faced by the industry, particularly in the aftermath of the COVID-19 pandemic and subsequent lockdowns, the government of Pakistan has disbursed a substantial amount of Rs 100 billion for the repayment of tax refunds and duty drawbacks.

    (more…)
  • No refund payment made on fake claims: FBR

    No refund payment made on fake claims: FBR

    KARACHI: Federal Board of Revenue (FBR) has said that it had never paid refunds against fake claims.

    In a statement issued on Thursday, the FBR clarified the news item about loss of revenue caused due to issuance of refund claims on fake registration by FBR published by some section of press and stated that no fake refund claim has been sanctioned or issued as mentioned in the news items.

    “As no fake refund payment has been made, therefore, the question of loss of government revenue does not arise,” FBR clarified.

    The FBR has initiated the fact finding on the basis of findings of Federal Tax Ombudsman and the report would be presented to FTO within the time limit as directed in the order passed on February 20, 2020.

  • Criminal proceedings against officials of RTO-II Karachi in fake sales tax refunds ordered

    Criminal proceedings against officials of RTO-II Karachi in fake sales tax refunds ordered

    KARACHI: Federal Tax Ombudsman (FTO) has directed tax authorities to initiate criminal proceedings against officials involved in processing bogus sales tax refunds.

    In an own motion in bogus refunds, the FTO observed that failure of the Regional Tax Office (RTO)-II Karachi to initiate action against the persons/officials involved in registration of fake refund payment and retrieval of refund already issued prior to issuance of red alert, was tantamount to maladministration.

    The FTO ordered the FBR to:

    — direct the Chief Commissioner Inland Revenue, RTO-II Karachi to investigate and identify the officials involved in registration of fake RP and initiate legal action against those found involved;

    — identify the officers/officials who were involved in processing bogus sales tax refund on the basis of fake and flying invoices and issuing refund pertaining to tax period August 12 and take appropriate criminal/disciplinary action against them.

    — initiate appropriate action including criminal proceedings leading to prosecution of RPO and recovery of amount of Rs3 million, swindled from public exchequer.

    The FTO directed the tax authorities to ensure compliance of the order within 45 days from the issuance of the order i.e. February 24, 2020.

    The tax ombudsman in its own motion initiated investigation in irregularities committed by the FBR field formations in processing and sanctioning of bogus sales tax refunds during the period 2011-2014 identified by Directorate General Intelligence and Investigation of FBR and ‘Red Alerts’ were issued to the field formations concerned but neither any action was initiated against the fake claimants nor their connivers in the department, who were involved in bogus registration, processing and sanctioning of fraudulent refund and issuance of refund cheques, nor against the related officers/officials of bank branches concerned and PRAL management.

    The FBR issued the instance order in the case of M/s Victory International, engaged in the manufacturing of plastic products.
    The investigation of I&I FBR revealed that the RP got registered on November 11, 2010 as a manufacturer of plastic product but claimed refund of Rs3 million for tax period August 2012 on the basis of fake invoices issued by irrelevant suppliers from paper, steel, electric sectors therefore the whole activity chain was treated as engineered with aim to obtain illegal refund.

  • FBR advised to allow sales tax refunds on local supplies

    FBR advised to allow sales tax refunds on local supplies

    KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday advised Federal Board of Revenue (FBR) to allow sales tax refund to manufacturers making local supplies.

    The tax bar in a letter to FBR suggested in order to promote diversification of exports instead of relying solely on 5 export oriented sectors, you are requested to kindly issue necessary clarification/make necessary amendment to the effect that exporter-cum-manufacturers include all manufactures engaged in local as well export sales.

    The tax bar said that apart from five export oriented sectors, conditional facility for expeditious processing of sales tax refunds through FASTER system has been given to exporter-cum-manufacturers, however, as per Income Tax Circular no. 10 of 2008 dated August 27, 2008, the term exporter-cum-manufacturers means those manufacturers whose exports during the preceding year are more than 80 percent.

    The KTBA pointed out that input tax on fixed assets is adjusted against the minimum sales tax liability under section 8B of the Act only incase where other normal input tax [on goods / services] is less than 90 percent of the Output Tax, however, in case any unadjusted / unutilized input tax relating to fixed assets is carried forward to subsequent months than the same is treated at par with normal input tax and not being treated as input tax on fixed assets.

    Therefore it suggested that in order to allow fair treatment of input tax on fixed assets and in order to promote capital intensive investment, kindly direct concerned person to make necessary amendments in online sales tax return portal to treat input tax on fixed assets as part of the input tax on fixed assets even if the same is carried forward to subsequent months.

  • FBR allows filing Annexure H for July 2019 to claim sales tax refund

    FBR allows filing Annexure H for July 2019 to claim sales tax refund

    ISLAMABAD: Federal Board of Revenue (FBR) has allowed filing of statement containing stock position for July 2019 to taxpayers for claiming sales tax refunds.

    In an official memorandum issued on Thursday, the FBR condoned the time limit for filing of Annexure – H for the tax period July 2019 up to January 15, 2020.

    Annexure-H is a statement for providing stock position by taxpayers along with monthly sales tax return.

    The FBR from July 01, 2019 introduced expeditious payment of sales tax refunds within 72 hours subject to the true filing of Annexure – H.

    Recently, Karachi Tax Bar Association (KTBA) highlighted this issue and urged the tax authorities to resolve for facilitating exporters and manufacturers.

    The KTBA pointed out that as per the amendments made in Sales Tax Rules, 2006 vide SRO no. 918(I)/2019 dated August 7, 2019, mechanism for expeditious processing of refund claim has been devised only for manufacturers-cum- exporters.

    As per the Rules, refund will be treated as having been filed only after filing of Annexure H of the Sales Tax return, for which deadline of 120 days has been prescribed in the Rules and the same can be extended for a period of 60 days on the basis of approval from the Commissioner.

    However, the rules are silent about the mechanism for processing of Sales Tax refunds incase Annexure H has not been filed by manufacturer-cum-exporter for any reason. Considering the legal and legitimate right of the taxpayer to claim adjustment / refund of the input tax, either of the following two option be considered by the FBR for facilitation of exporters:

    Allow filing of Annexure H without any time limit [present time limit of 4 months be abolished and taxpayer be allowed to claim refund as and when required] ii. Incase present limit of 4 months cannot be abolished, registered persons be allowed atleast to alternatively file refund on annual basis after the end of the tax year.

    Apart from the above, Annexure H is only being allowed to be filed to taxpayers who have filed the said Annexure from sales tax returns of July 2019 and onwards. Instead of claiming refund, some taxpayers have reported sales tax carried forward balance in their sales tax returns from July 2019 onwards. In case they now intend to file Annexure H from the current month,

    FBR’s online portal does not allow such taxpayers to enter opening balance of inventory / raw materials as the said field in blocked for editing. This limitation should be removed and taxpayers should be allowed to file Annexure H for any specific month, for which they intend to claim refund. From apparent mechanism being followed by the system, it appears that those taxpayers who have not filed Annexure H for the month of July 2019 will never be allowed to file Annexure H for any subsequent month. This apparent anomaly should be resolved at earliest.

  • Exporters perturb over part of tax refund claims disallowed without reason

    Exporters perturb over part of tax refund claims disallowed without reason

    KARACHI: Pakistan Hosiery Manufacturers Association (PHMA) on Friday pointed out reduction in refund amount against original claim.

    The PHMA in a letter sent to Ms. Seema Shakil, Member Inland Revenue (Operations), Federal Board Revenue (FBR), informed that it is regretfully informed that against the 100 percent claimed sales tax refunds amount, FBR has cleared 60 percent to 80 percent of 100 percent refund amount and the exporters are unaware why the FBR had withhold the remaining refund amount which has created unrest and spread dissatisfaction among our member exporters.

    With utmost concern we want to learn as to why 100 percent payment of Sales Tax Refund is not made and why some part payment has been deferred / withheld without informing any reason.

    Kindly look into this matter and inform us how to check the reason of withhold amount against sales tax refund claims in Annexure H under FASTER.

    Upon review of the outcome of the refund claims and feedback of our individual members through their professional team we have observed that rejection of the refund claim is largely attributed to the objection of “Risky” and “No amount is admissible for refund”.

    These objections by and large are issuing to refund claimants having a substantial amount of carried forward in their sales tax return and RMS particularly in the month of Jun 2019 but not appearing in RPO of the Jun 2019. You may appreciate in the past electronically rejected claims were processed by local RTO and subsequently RPO’s were generated with lapse of considerable time by processing officer.

    The carry forward amount in those RPOs are though appearing in RMS but due to skip of sequence the same were not incorporated in subsequent months electronic claims and therefore the carry forward amount in electronically issued RPO of Jun 2019 is not tallied with sales tax return or carried forward amount available in RMS.

    You are therefore requested to kindly look into the matter and issue the necessary instructions for incorporating verified carried forward amount appearing in RMS into FASTER and reprocess such refund claims which were rejected due to this technical constraint.

    Objections namely “Risky” and “No amount is admissible for refund” are not understandable, since all the Purchases are made from registered supplier & exporters for export purposes. Why would system not refund a Single Penny.

    Some of the exporters in the first month i.e. July 2019 has opted to carry forward the excess input tax. According to the refund rules the annex ‘H’ is only requires to be filed by person claiming refund.

    The question arises if the annex ‘H’ is not filed by the person opted for carry forward in accordance with the refund rules, how could their carried forward amount be transferred into the brought forward value of next month in the absence of this figure in their RPO of July 2019?

    How it is possible that one month claim is approved by the FASTER and the very next month claim is rejected by the FASTER without giving any reason. Therefore, FASTER should be equipped to define the reason of rejection. “Risky” and “No amount is admissible for refund.

    It has been observed the FASTER system runs once a month due to which large number of claims are rejected. It is proposed that FASTER system should run preferably once a week to avoid rejection of large number of claims.

    The time limit of 120 days for filing of Annex ‘H’ in this background is also needs to be extended. It is proposed to extended time limit for at-least another 60days for submission of Annex ‘H’ for the months of July, 2019 and August, 2019, so that genuine amount of refund claims due to this shift of regime and technical problems should not be lapsed.

  • FBR to issue around Rs3 billion tax refunds in next couple of days: Hafeez Shaikh

    FBR to issue around Rs3 billion tax refunds in next couple of days: Hafeez Shaikh

    ISLAMABAD: Federal Board of Revenue (FBR) will issue another Rs2 to 3 billion tax refunds in next couple of days, Dr. Abdul Hafeez Shaikh, Adviser to the Prime Minister on Finance and Revenue, said on Thursday in a meeting with leading businessmen.

    The adviser told the businessmen that FBR was working very hard to facilitate the exporters and another Rs 2 to 3 billion tax refunds would also be issued within the next couple of days.

    The meeting discussed and reviewed progress on the issues pertaining to payment of Sales Tax refunds to exporters.

    Adviser to Adviser Commerce Ali Habib, Chairman FBR Syed Shabbar Zaidi and Secretary Finance Naveed Kamran Baloch were also present in the meeting which was attended by leading exporters from Lahore and Karachi, including Shahid Soorty, Musaadiq Zulqarnain, Fawad Anwer, Shahid Abdullah, Bashir Ali Mohammad, Rizwan Dewan, Asif Tata, Ahmed Ibrahim, Sameer Chinoy and Khurram Mukhtar.

    During the proposals, various proposals were put forward from the businessmen and exporters and FBR was advised to work more aggressively on reforming and simplifying the processes through automation for early and prompt payment of sales tax refunds.

    He told the businessmen he had already constituted a committee comprising officials from FBR and members of APTMA to simplify the Form-H within the next few days to make it simpler and easy for the exporters claiming sales tax refunds.

    The businessmen were asked to nominate anyone they liked to become part of the Committee as he wanted to ensure a hassle-free submission of tax refund claims and their subsequent payment without any delay.

    The businessmen thanked the Adviser and his team in FBR for ensuring payment of Rs 32 billion sales tax refunds to the exporters in the last couple of days.

  • FBR issues Rs5.5bn refunds through automated system: Shabbar Zaidi

    FBR issues Rs5.5bn refunds through automated system: Shabbar Zaidi

    ISLAMABAD: Syed Shabbar Zaidi, Chairman, Federal Board of Revenue (FBR) on Wednesday said that around Rs5.5 billion sales tax refunds were issued through fully automated system.

    In a massage, he said that the FBR had released to this date around Rs 5.5 billion worth of refunds under fully automated FASTER system.

    “However the most important feature and the change in paradigm is that such refunds have been issued under fully automated, impersonal, harassment and corruption free system.”

    In August 2019 the FBR amended the Sales Tax Rules, 2006 through SRO 918(I)/2019 to make mandatory the routing of refund claims through RMS of the FBR’s computerized system.

    Based on the parameters in RMS, a refund claim shall be routed to any of the following three channels as described below, namely:−

    (a) Fully Automated Sales Tax e-Refund System (FASTER), The provisions related to this channel are prescribed in Chapter V-A.

    (b) Expeditious Refund System (ERS), The claims filed by the manufacturer cum-exporters under section 10 of the Act that do not fulfill parameters of FASTER channel and the same are considered as involving medium risk by RMS shall be routed to ERS. The RPO for verified amount shall be generated and forwarded to CSTRO for payment.

    (c) Sales Tax Automated Refund Repository (STARR), The claims that do not fulfill criteria for both FASTER and ERS channels shall be processed through STARR in the manner as provided in rule 29.

    For the refund claims processed through FASTER or ERS, the part of the refund claim that is not verified or not found admissible shall be subjected to system validation checks every week and Refund Payment Order (RPO) shall be generated for the amount found valid during each validation check. After every validation process, the information regarding RPO generated, if any, as well as the objections shall be communicated by the system to the refund claimant and also to the concerned RTO or LTU for information.

    The FBR said that RPO so generated shall be communicated to the State Bank of Pakistan for payment in the aforesaid manner. After eight validation checks, including the initial one, if any amount still remains un-cleared, the same shall then be processed under STARR channel.