FBR unearths new fraud technique in ERS

The Federal Board of Revenue (FBR) has unearthed a new fraud technique in the Expeditious Refund System (ERS) where certain unscrupulous elements are deliberately declaring 'no recoverable demand' in their declarations (Electronic Refund Claim) for making them eligible for receiving refund electronically.
Sources told Business Recorder here on Friday that the misuse of the ERS facility was discussed threadbare during the last Chief Commissioner Conference held on August 4, 2011. There is a column in the Electronic Refund Claim form about the 'recoverable demand' against the taxpayer under the Expeditious Refund System (ERS).
Taxpayer has the option to either declare 'yes' or 'no' in the declaration to determine whether recoverable demand is admissible against the taxpayer or not. There are persons, who have recoverable demands, but they do not mention in the relevant column of the Expeditious Refund System (ERS) claim. This has been done deliberately to avoid objection raised by the electronic system and applicant become eligible for claiming sales tax refund under the ERS.
There are cases where recovery of taxes is due, but they show non-recovery in the ERS claim. According to sources, the Chief Commissioner Conference discussed the issue and decided to conduct the Post-Refund Audit of such cases to determine the authenticity of the declarations made by the registered persons.
The column 4 of the Electronic Refund Claim says, 'Recoveries against the registered person ordered through the following orders may not be recovered from this refund claim as registered person wants to pay after decision of Appellate Tribunal/ ADRC/ Court'. The taxpayer has to declare 'yes' or 'no' in the relevant column. In different cases, taxpayers declare that they have no recoverable tax liability to ensure that their refunds would be processed without facing legal objections.
The conference discussed that the payment of sales tax refund should not be made to the taxpayers, who deliberately make false declarations merely just to become eligible for refund under the ERS. In cases where taxpayers make wrong declarations about the outstanding tax liabilities, the Federal Board of Revenue (FBR) should not further process the refund claims till the discrepancy has been removed, sources stated.
The Chief Commissioner Conference also discussed the options to deal with the issue by placing checks in the system or modification of software of the Expeditious Refund System (ERS). However, the PCA was considered to be the most appropriate tool for dealing with such cases of verification purposes.
When contacted, a tax expert said that the question arises if there is any tax recovery pending against the refund claimant then the system should automatically detect the recoverable amount against the tax liability as legal position has already been provided under sub-section 3 of section 10 of the Sales Tax Act, 1990. This reflects lack of co-ordination between the recovery and the enforcement divisions of the creator of database administration of the FBR, tax expert added.