Flaws in STARR

Computer glitches related to the Sales Tax Automated Refund Repository (STARR) system have been the subject matter of several newspaper reports in the recent as well as the distant past. It is indeed ironic that STARR was developed in the fiscal year 2004-05 to streamline the process of issuance of sales tax refunds.
A year previous to its implementation, total refund was 35 billion rupees, which rose to 54 billion rupees after STARR was implemented. However STARR failed to check fraudulent refunds. The government, instead of scrapping or improving the system, decided to zero-rate five major export-oriented sectors which, it was argued, would facilitate settling the refund on residual material such as packing.
This did not occur and the system continues to defer invoices as and when a supplier's status is not confirmed. This, needless to say, has led to the piling up of pending cases attributed to the non-verification of the requisite documents. The flaws that are now associated with STARR have assumed alarming proportions, as around 25.7 billion rupees of sales tax refunds involving 10,868 cases have been blocked.
What is interesting is that an investigation on the performance of STARR was recently launched by the Federal Board of Revenue (FBR) that noted 'serious flaws' in the software system. These include (i) no in-built security mechanism that can effectively check data tampering with the staff, (ii) capturing data in client-end software, instead of in real time, and (iii) there is no linkage between the sanction of the refund and the subsequent post-refund audit system.
The seriousness of these flaws require urgent remedial measures, which must focus on either scrapping the entire system and replacing it with a more effective one, or indeed improving the existing system with the assistance of technical staff. Failure to take effective action is expected to strengthen the existing negative impact on Pakistan's productive sectors that are already reeling from, not only the global economic slowdown but also continued loadshedding.
Critics claim that the government's hesitation in dealing with the flaws of STARR is related to the fact that its own revenue base is very weak at present and any money kept in its accounts, whether legitimate or not, allows it to show a more favourable picture to the International Monetary Fund that is carefully monitoring the government's budget deficit.
If such allegations are found to be true, this is a very short-sighted approach. Cash flow is extremely important for the productive sectors and by limiting their cash flow, through not refunding them promptly for being doubly taxed, the government is further hampering productivity in the country.