Refund systems of FASTER: FTO recommends FBR to develop adequate safeguards

ISLAMABAD: Federal Tax Ombudsman (FTO) has strongly recommended the Federal Board of Revenue (FBR) to conduct physical verification of business premises of all manufacturers, who files first claim of sales fax refund in the “FASTER” refund system.

The Own Motion investigation was initiated by FTO Secretariat, Islamabad on rejection of request of a taxpayer for change of jurisdiction of business from one Regional Tax Office (RTO) to the other.

M/s Bin Tariq Impex has caused huge loss to the national exchequer by getting hefty amount of sales tax refunds Rs.820.565 million on the strength of bogus and fake invoices as an exporter through FASTER/ ERS, FTO investigation revealed.

According to an order of the FTO issued on Friday, the FBR may consider the following measures to develop adequate safeguards in refund systems of FASTER:

(i) When the manufacturer files first claim of refund in the FASTER, physical verification of the business premises by the concerned Regional Tax Office (RTO) may be ensured to determine the genuineness of the business activity and determination of its production capacity by co-relating it with its utility expenses. Any change of particulars in Form 181 in IRIS may be made with the prior approval of the concerned Commissioner-IR.

(b) A validation check may be put in place to cross-match the purchases declared in the sales tax returns with the capital declared in the income tax return.

(ii) The FBR should co-relate HS-code of goods purchased as declared in sales tax returns and may be made compulsory in the IRIS for the refund claimant in order to determine its relevance to the supply chain.

(iii) FBR should build in checks that may be introduced in FASTER to block refunds in cases of sales tax registration number (STRN) suspension with the same CNIC of individual/ AOP member/ director of a company.

Actual verification of payment deposit may be put in place in the FASTER instead of invoice based input verification mechanism.

There are only two ways of sales tax payment: i) through CPR, & ii) through Bill of Entry at the time of import. Currently, input validation process through column 7(a) and 7(b) is in place. Evidence-based physical transaction will ensure input tax deposit in the government treasury.

On initial probe it was found that the registered person filed his refund claims through FASTER for the first time without any physical verification of the existence/ capacity of the business premises and continued to avail fast track issuance of refund claims being an exporter till August, 2021.

In the wake of foregoing it was manifestly clear that the registered person had successfully managed to get the refund issued due to inadequate checks and balances in FATER/ ERS. FBR at all levels failed to take timely cognizance of huge refunds which continued to flow for almost a year till the department took notice of this fraudulent activity.

The case is a clear instance of maladministration, neglect, inattention, incompetence, inefficiency and ineptitude in the administration or discharge of duties and responsibilities and requires a thorough investigation at the highest level. It also calls for revisiting the refund systems already in place by creating sufficient, inbuilt checks in order to forestall the future repetitions.

FTO has further recommended that a high-level inquiry committee may be constituted by the FBR to probe and examine the facts and circumstances which led to issuance of this huge amount of refund and fix the responsibility for the negligence and inefficiency by the concerned department’s functionaries which led to substantial loss to the national exchequer.

To avoid multiple ST registrations on single premises GPS tagging may be introduced in sales tax registration software. During registration process taxpayer may enter GPS coordinates of manufacturing premises in the system and in case of duplicate GPS coordinates system should provide existing STRN of the same premises, FTO order added.

Copyright Business Recorder, 2023