Shipments confirmation: World Bank for modification to sales tax refund rules

The World Bank has directed the Federal Board of Revenue to introduce modification in the sales tax refund rules to ensure confirmation of export shipments from the shipping companies for proper verification of the refund claimants. Sources told Business Recorder here on Monday that the WB review mission has submitted a report on the Tax Administration Reform Project to the FBR.
According to the WB report, a major proportion of the Expeditious Refund System (ERS) rejections relates to a mismatch of Mate Receipt (MR) numbers with the Goods Declaration (GD) numbers. The FBR will adjust the ERS to verify the shipment data information provided directly from the shipping companies. The FBR will also ensure, through Member Customs, that this data is provided electronically and timely.
The backlog of pending information will be cleared. The FBR will introduce necessary modifications in the refund rules of sales tax with a view to make "confirmation of shipment" based on the electronic information communicated by shipping companies instead of verifying the MR number. This change will apply to both the ERS as well as normal system of refund processing.
The WB said that the significant progress has been observed regarding the implementation of the ERS and the reduction of the stock of pending refund claims. It is important to stress that the effective implementation of the ERS is a critical issue that needs to he resolved prior to the approval of the forthcoming reformed GST (RGST).
The ESR was introduced as a pilot in Lahore in April 2010. In April 2010 the system was extended to all RTOs and LTUs. On August 20th a public seminar on ERS was held in RTO Lahore to get feedback directly from concerned taxpayers regarding the system piloted in the RTO. As a result of the seminar, it was clear that the adjusted to truly make it expeditious and effective. In addition to the introduction and the smooth functioning of the ERS, the huge and growing stock of old pending refunds needs to be addressed.
To address the need to adjust the ERS and the reduction of the backlog of refunds, on September 4th, the FBR Revenue Board issued an Executive Order, which establishes delay in issuance of refund cheques. The gap between issuance of Refund (RPO) and release of refund cheque is sometimes significantly more than the seven days stipulated timeframe. The FBR will:
The FBR will introduce a system to electronically deposit refunds into taxpayers' bank accounts by March 2011. The board would also centralise, in the interim, the issuance of the refund cheques. The FBR will ensure that the stock of unprocessed refund claims will be diminished in the immediate future.
The WB said that the stock of unprocessed refund claims is growing and creates serious distortions. Approximately 3 percent of the pending claims account for 80 percent of the total amount claimed. A major effort will be conducted to reduce the number rather than the total amount of pending cases. FBR has decided to reduce, by the end of October, the number of pending refunds by 50 percent. To achieve this target, FBR will create a Task Force which will be supervised by Member Enforcement, who will be responsible for achieving the target.
The task force will concentrate particularly on Lahore, Karachi and Faisalabad. At least one member of the Task Force will be assigned to each Commissioner Enforcement. Members of the Task Force will provide a daily progress report to Member Enforcement who in turn will report to the Chairman FBR. The FBR will set gross revenue targets for each RTO and LTU in addition to the current targets, which are calculated on net basis (net of refunds), WB review mission added.