Collecting sales tax refunds is becoming increasingly frustrating for our exporters. As a Recorder Report reveals, refund claims worth a staggering sum of about Rs 40 billion (tax officials refuse to give the actual figures for fear of triggering an unpleasant controversy) are pending with the Sales Tax Refunds Collectorate.
Part of the problem seems to be the fiscal deficit that has been rising rather rapidly in the wake of a prolonged political uncertainty, subsidy on POL prices on account of political expediency and a dark shadow it cast on the economy. As a result, the gap between the target and real revenue collection has been widening, leaving the government with insufficient cash to meet its obligations.
But there is also another sordid reason, which is related to the Collectorate's internal flaws. According to a report, the Federal Board of Revenue (FBR) has busted a refund scam in Sialkot involving tax officers and exporters who colluded for fraud, offering fake refund invoices and tampering with sales tax record. Notably, a Sales Tax Automated Refund Repository (STARR) computer system was in place to check fake claims. It did detect wrongdoing and raised objections, but the concerned officials just ignored them. Instead, they went on to change computer records to fit their foul purposes.
As per preliminary investigations, so far about 80 cases of fraud have been detected in Sialkot. In another instance, 14 export units located in Gujranwala are alleged to have obtained illegal refunds on the basis of insufficient documents. Both frauds have involved registered units of commercial exporters and their suppliers, who issued fake invoices. The frauds took place during 2004-06. Our report says that there are also indications of ongoing large-scale corruption among the Punjab sales tax officials.
Understandably, FBR officials are now extra careful in processing the refund claims, as they try to scrutinise all invoices in detail. Needless to say, honest businesses should not have to suffer for the crimes of others. They are already facing a multitude of problems on account of inflation, poor law and order situation, political uncertainty, energy crisis and a host of other issues, all of which have increased the cost of doing business manifold. Meanwhile, the slowdown of the US economy threatens to affect our exports in unexpected ways.
The last thing our exporters need at a time like this is hitches in cash flows in the form of stuck-up sales tax refund claims. The government must ensure that the exporters, a majority of whom are honest, hardworking people, can collect their refunds in a timely fashion to go on working without having to run after the tax people for the recovery of their outstanding tax payments dues.
The FBR, of course, has to ensure that no one flouts the laid down procedures. Its investigations into the two fraud cases show that the concerned officials wilfully committed crime when they overruled an existing system of objections for the issuance of refunds.
Also, they failed to carry out the required profile analysis of suppliers while sanctioning refund claims of commercial exporters under the Refund Rules, 2006. No wonder, some of the outfits involved in the two scams are mere ghost companies. Refunds were also issued in violation of certain other procedures and rules. It is plain from these details that some unscrupulous elements have been able to commit fraud despite the existence of proper rules and regulations. The compliance mechanism is defective. Hopefully, FBR will be able to fix it sooner rather than later. It must find an efficient and effective way of establishing the credibility of refund claims so that honest people do not have to wait endlessly for the release of their stuck-up money.
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