ISLAMABAD: Prominent exporters have pointed out some serious flaws in the revised procedure of the Federal Board of Revenue (FBR) for the issuance of sales tax refunds to the exporters of five leading sectors, i.e., textile, leather, carpets, surgical and sports goods under an automated Sales Tax e-Refund System (FASTER).
Leading exporters from Karachi told Business Recorder that the FBR has issued sales tax general order (STGO) 9 of 2023 for revision of the processing of the sales tax refunds under the FASTER system for leading export industries.
The analysis of the STGO revealed that there are some serious discrepancies and issues in the revised procedure. The FBR should issue a clarification to respond to the queries raised by the exporters to resolve their problems. Firstly, one of the new risk parameters is that the expenses incurred on utilities shall be prorated on the basis of consumption between zero-rated supplies and domestic sales.
Automated refunds: FBR to apply new risk parameters for processing
Exporters raised a question that how the exporters will differentiate between the utilities consumed for export goods, as well as, those consumed for domestic sales. How the expenses incurred on utilities shall be prorated?
All Value Added Textile Associations have objection on this point, because it is not possible for individual or the exporter to proportionate the utility consumption use in export & locally supplied goods. All Value Added Textile Associations have suggested that this check should be removed from the check/ risk parameters.
Exporters further said that the FBR has also issued a list of 714 items on which input tax adjustment shall not be allowed to five leading export-oriented industries.
However, the exporters are reviewing the list and it has been found that some items used by the said sectors are included in the negative list. For example, the negative list item number 212 is “Salt (including table salt and denatured salt) pure sodium chloride whether or not in aqueous solution sea water”. Anyone working in the textile sector knows that salt is used by the industry but it has been included in the negative list.
Exporters will compile the list and communicate the same to the FBR for exclusion from the negative list of the sales tax general order 9 of 2023.
Exporters stated that according to the FBR’s procedure, “these system glitches created problems for exporters in terms of uncertainty and stuck-up liquidity and for the tax administration in terms of credibility deficit”. Exporters clarified that the export industry has always highly appreciated the FATSER system due to speedy payment of refunds and this is the unique feature of the FATSER system, ‘but we have never talked about any system glitches’. The FASTER system was suspended and refund processing was stopped. We only requested to restore the system, they argued.
The FBR said that the total amount of refund paid against the claims filed and processed shall not exceed the lower of the two amounts, namely, the amount of input tax actually consumed in goods as exported/ supplied at zero-rated rate, or 12 percent of the exports. Exporters objected that as the standard rate of sales tax has been increased from 17 to 18 percent; therefore, the percentage of refunds should be more than 12 percent.
Point 5 of STGO clearly states that this will be applicable with effect from the return filed in the month of March 2023 but FBR has applied risk parameters in previous months’ returns as well resulting in deferment of huge amount of sales tax refunds & issuance of Rs1 RPO. Moreover, the Point 5 of the STGO mentioning that “shall be applicable with effect from the return filed in the month of March 2023” which should be “ Return filed for the month of March 2023”.
A Risk Parameter Point 3 serial (iii) stating “Logical check shall be enabled in system to cross match the date of export GD with date of purchase invoices.” This check is completely illogical & illegal because the purchase of raw material and its processing is a continuous process and there will be purchases after GD and shipping bill date as these purchase invoices belong to future shipments & inventory maintained by the manufacturer cum exporters.
For example, if an exporter ships goods on Jan 15 and has the next shipment in the month of February, should sales tax on purchases from January 16 to 30 should be deferred. The answer should be no, as these are purchases for shipments for the month of Feb onward. Application of this check has resulted in deferment of the huge amount of refunds.
A Risk Parameter- Point 3 serial (iv) stating “First Claim of refund by newly registered exporters for first twelve months shall be excluded from FASTER and processed through STARR/ERS.” It is the effort by FBR to discourage entrance of new exporters as these claims took a long time to process.
All Value Added Textile Associations have suggested that this check should be removed from the check/ risk parameters to encourage exports.
A Risk Parameter Point 3 serial (v) stating “Refund Claim once excluded from FASTER shall not be allowed to roll back it shall be processed only through STARR & ERS”. The exporters cannot be blamed for the system error. All Value Added Textile Associations have objection on this Point as the entire process of FASTER System prescribed in the Sales Tax Refund Rules 2006 for processing of refund claims. Therefore, insertion of this check through STGO is entirely illegal. It has been advised by all the Value Added Textile Associations that this check shall be excluded, exporters requested.
The FBR procedure said that the Value Addition check shall be 15% both for exporters and local supplies for filling of Annexure H for current tax period.
Responding to this, the exporters objected that since the FASTER system introduced, the Value addition matter had been discussed previously several times and been mutually agreed on 10% because all different textile sectors have different value addition on their products, for example, toll manufacturing or indirect exporters those who supply their product locally to the exporter and their value addition comes between 5% to 10%; therefore 15% threshold cannot be applied for both local supplies and for commercial exports.
It has been advised by all the Value Added Textile Associations that Value Addition check shall be kept at 10% as previous both for exporters and local supplies for filling of Annexure H.
The FASTER shall defer proportionate input tax refund against export GD under objection. Exporters raised objection that all Value Added Textile Associations have objection on this Point as when the export GD is filed and the goods exported from Pakistan then there is no reason to defer the input tax refund through FASTER. The matters of Export GD which are under objection are entirely between the Customs and the Inland Revenue Service FBR’s data communication matter.
Exporters suggested that all Value Added Textile Associations have mutually agreed to exclude this check in the FASTER System.
Copyright Business Recorder, 2023
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