Starr's shortcomings

The Sales Tax Automated Refund Repository (Starr) computer programme introduced to scrutinise and block refund claims filed by exporters on the basis of forged documents/fake sales tax invoices, has failed to perform its assigned task.
The system was introduced to replace the outdated manual procedure, in order to inject greater accuracy and efficiency in the disposal of refund cases whose number reportedly runs into thousands each year.
A Recorder Report quoting an official source has disclosed that during inspection and internal audit of Starr programme, it was found that refunds were allowed even in cases where the computer programme had detected discrepancies in documents submitted by exporters.
This was a contravention of the prescribed procedural parameters that lay down that if the Starr raises an objection in a case, the refund must be withheld till the time the discrepancy has been resolved. However, according to the Recorder Report, auditors in most of the cases have tended to overrule the objections raised by the Starr programme.
Further, errors have been detected in computerisation of sales tax data. All this obviously is a very serious matter, as sales tax is believed to make up about 66 percent of the revenue generated through indirect taxation in Pakistan. Fraudulent transactions and fake invoice filing by exporters has become a nightmare for tax authorities. It is said that hundreds of export houses, distributors and manufacturers had last year filed bogus sales tax invoices on the basis of forged documents to claim over Rs 500 million from the government on account of sales tax refund. During subsequent scrutiny the record of 111 companies was checked, of which 31 were blacklisted.
This represents a fairly high percentage of exporters who resort to underhand methods to defraud the national exchequer. The problem of exaggerated refund claims filed through use of bogus invoices, non-accounting of cash sales or purchases, under-reporting of sales through multiple account books, claims based on purchases made from unregistered businesses etc are only some of the methods used by some exporters to avoid paying the sales tax.
For the revenue collectors the cost of administration and monitoring of refunds is high, as extensive capabilities are needed to operate the system, and the potential for tax evasion is quite considerable. Pakistan's tax structure is highly centralised, largely because of the government decisions, and partly because the taxation system is based on the IMF diktat. However, at times the prescriptions handed down by IMF and World Bank are not suited to the national requirements.
Pakistan had passed the Sales Tax Act way back in 1990 with the objective of moving towards a global value-added tax (VAT) system. However, many problems have since cropped up along the way, which are mainly related to refund claims filed on the basis of fake invoices and other documents. Accurate computerisation of data, particularly of the type handled by CBR, requires extensive specialised training for the staff.
The same holds true for the auditors. What is rather intriguing in the present case is that refunds were issued in cases where Starr computer programme had detected discrepancies in the documents submitted by exporters. This must have entailed considerable loss to the national exchequer.
How this happened needs to investigated. Upgradation of Starr software can provide a way out of the dilemma. The tax authorities should also ensure accuracy of the data fed into the system. This can be done through cross-verification of the figures fed by the computer operators.
It is said that the on-going tax reforms will help realise 0.2 percent increase per annum in the tax-GDP ratio which at present is one of the lowest in the world. The restructuring of the taxation system undertaken by the government is a step in the right direction, as it will yield greater revenue. The CBR should further streamline the system to ensure against revenue leakage.