ISLAMABAD: The Auditor General of Pakistan (AGP) has asked the Federal Board of Revenue (FBR) to explain why the FBR Refund Settlement Company Limited (RSCL) was not made operational for the issuance of sales tax bonds to the tune of billions to the exporters.
The AGP has raised the question about the whereabouts of the FBR Refund Settlement Company Limited under the new audit report for 2021-22.
Under the FBR Guidelines for Sales Tax Refund Bonds issued in 2019, the bonds to be issued by the FBR Refund Settlement Company Limited (the company) in the Central Depository System (book-entry form) against Refund Payment Orders as issued in favor of the claimants under Section 67A of the Sales Tax Act 1990. The bonds shall be issued in values in multiples of one hundred thousand rupees.
The bonds so issued carry a simple profit of 10 per cent per annum payable at the end of maturity period i.e. against a bond of Rs100,000, Rs130,000 shall be paid after maturity to the holders of the bond. The bonds are freely transferable within CDS. The bondholders can sell/transfer the bonds to another person/bank/entity against any consideration or without any consideration (simply as Gift). No payment will be recorded/handled in CDS. The bonds shall be approved security for calculating the Statutory Liquidity Reserve (SLR).
FY22 IT refund payments plunge 40.6pc to 54.22bn YoY
The report of the AGP stated that the section 171A of Income Tax Ordinance 2001, provides income tax refunds payable may also be paid through income tax refund bonds to be issued by FBR Refund Settlement Company Limited (RSCL), in book entry form through an establishment licensed by the Securities and Exchange Commission of Pakistan in lieu of payment to be made through issuance of cheques or bank debit advice.
The AGP observed that a supplementary grant of Rs100,000 million was obtained in the financial year 2019-20 and Rs40,000 million in the financial year 2020-21 with the title, “1B0799-Encashment of sales tax and income tax refund bonds”. However, it was observed that the above-mentioned bonds were never issued to the taxpayers. Instead of issuing bonds, the outstanding refund liability was discharged through payment of cash during the said financial years which was a violation of the above law.
The unauthorized refunds resulted in financial implications. The supplementary grant was not used for the purpose for which it was obtained from the Parliament. The refunds were paid in cash as normal refunds using a new head of account instead of refund codes specified/allocated by the AGP under article 170 of the Constitution. This has resulted in excess reporting of tax collection and excess payment of shares to provinces from the divisible pool causing extra burden on the federal exchequer pool during the relevant accounting period causing extra burden on the federal exchequer.
The lapse was reported to the department from August to November 2021. Department reported that a refund of Rs100 billion was paid through Technical Supplementary Grant (TSG) in 2019-20 and DR&S reconciled the revenue receipts of the said year with office of AGPR, Islamabad. Refunds of Rs40 billion had been issued during the financial year 2020-21 through TSG and the DR&S had already signed the reconciliation statement for said year with office of the AGPR, Islamabad by not excluding the amount of Rs40 billion from the overall revenue receipts of the FBR.
The AGP contended the management's reply on the grounds that the refund has to be paid out of gross tax collection for the year under relevant law instead of a supplementary grant obtained specially for the purpose of issuance of a refund. This resulted in excess reporting of tax collection and less payment of shares to provinces from the divisible pool during. Moreover, the purpose of issuing of refund bonds was defeated causing immediate burden on federal exchequer.
The DAC in its meeting observed that a substantial amount was granted to the FBR for establishment of Refund Settlement Company but no progress in this regard was made by the FBR till the financial year 2020-21. The representative of Finance Division also endorsed the viewpoint of Audit that neither Refund Settlement Company was formed nor refunds were issued through bonds. The DAC further observed that this was operational and policy level issue and it was agreed that matter may be taken up with concerned wings of FBR through Member Accounting FBR.
The AGP has recommended that the position may be clarified under the intimation to the AGP as the said company could not be established which resulted in non-issuance of refund through bonds.
This also led to excess reporting of tax collection, less payment of share to smaller provinces from divisible pool and adversely affected the liquidity of federal exchequer. This discrepancy may be regularised by getting authorisation from the Ministry of Finance and this practice may be discouraged in future.
Copyright Business Recorder, 2022
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