The sales tax refund verification system of the Federal Board of Revenue (FBR), empowered to verify billions of refunds on daily basis, lacks a number of essential tools necessary for doing the job accurately along with monitoring of post-refund audit and analysis of its results.
An in-depth analysis of the STARR has made some astonishing revelations that refund verification system of the FBR has not implemented some of the key system features like absence of database on summaries of invoices (registered person-wise, not individual invoices) concerning audit of registered persons.
Sources told Business Recorder here on Saturday that the Auditor General of Pakistan has conducted first of its kind o audit of STARR system. This is for the first time that an external audit agency has conducted in the analysis of STARR system, which is primarily responsible for clearing refund claims. In the past, all mega sales tax scams have taken place through misuse of system. The most serious issue of STARR is that there is no in-built security in the system which could effectively check the personnel and staff operating the system from flirting with the data.
The FBR has informed the audit department that all deficiencies in the system as pointed out by audit have already been addressed by the Board. The STARR has incorporated all important features, which were required for checking of refund claims. According to the special report of the Auditor General on STARR, the STARR was required to be implemented in three phases by developing desired functionalities. The Pakistan Revenue Automation Limited (PRAL) has developed STARR system. However, important functionalities as envisaged in concept paper of STARR have not been developed by the FBR.
Following functionalities of STARR have not been developed by the FBR:- Firstly, monitoring of post-refund audit and analysis of its results. The software will generate periodical reports aimed at pointing out results of audit, amounts involved and brief indication of the offence; new phenomena found in post-audits, non-compliance of post-audit directions, non-performance of post-audit checks and auditor-wise performance.
Secondly, the system should have the ability for handling/recording of stock-statements, to perform a series of checks on patterns of stocks declared by the claimant over a period of time and to point out any abnormalities. Thirdly, the STARR should develop another database of summaries of invoices (registered person-wise, not individual invoices) based on audit of registered persons.
Fourthly, the system should enable the generation of analytical tools to carry out input/output analysis of manufacturer-cum-exporters. Fifthly, the STARR system should allow blocking/de-blocking of individual refund claims by Centralised Repository.
Sixthly, the STARR system should have the ability to point out potentially suspicious suppliers, using a series of parametric checks. Seventhly, the system should enable identification of registered persons for targeted audits. Eight, the STARR system should further conduct refining of existing Audit module.
Ninth, the system should have the ability of monitoring of the working of the profiling system of sales tax refund claimants to ensure up gradation and low gradation on the basis of audit. The non-development of the said functionalities resulted in non-achievement of objectives of system as set forth by FBR in concept paper such as reduction in spurious refund, lessening of human involvement and transparency through maintaining audit trail for each and every transaction, etc. PRAL should develop these functionalities to ensure the achievement of objectives of system, the Auditor General report added.
Responding to the observations of the Auditor General, the FBR has constituted a core business domain team. According to the FBR, the following features have already been incorporated in STARR:- The Post-Refund Audit system is ready, which provides the facility of detailed analysis of the claims and feeding of its results. Auditor-wise performance can also be monitored through this system. The analytical tools to carry out input/output analysis of manufacturer-cum-exporters has already been introduced. The blocking/de-blocking of individual claim is done by the RTO/LTU on the directions of officers concerned. Facility for Blocking/de-blocking of individual claim is already available with the In-charge, Refund Processing, FBR added.
When contacted, a tax expert said that refund processing officers relied heavily upon STARR system for checking admissibility and genuineness of the claims, but the system could not detect flying/fake invoices. The STARR system over a period of years has become obsolete as a number of conditions/criteria are no more applicable, making the refund process more cumbersome.
Analyst said that the Data Base Administrator of the STARR holds all the privileges of accessing or amending the data of profiles/returns of the taxpayers. In this way, there would be no trace of the fraudulent clearance of invoices of blacklisted persons. The Data Base Administrator has the authority to re-allocate their claims to any person of choice. These checks serve as smokescreen to divert the attention from processing of refunds against invoices of supplies making no payment. Once the objection flags are being removed from the blacklisted or suspected suppliers under the system, STARR would treat such suppliers as genuine for claiming refunds. The absence of in-built security in STARR has made things easy for those intended to commit tax fraud, the tax expert added.
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