Loopholes detected in ERS

The Federal Board of Revenue''s (FBR) Directorate-General of Intelligence and Investigation, Inland Revenue (IR), has detected major loopholes in the Expeditious Refund System (ERS) and suggested a review of the entire system to prevent fraudulent refund claims or duplicate issuance of sales tax refunds.
Sources told Business Recorder here on Sunday that the directorate of intelligence (IR) conducted an in-depth analysis of the ERS and pointed out some new areas, which had never been checked in the past.
For example, the ERS cannot specify duties and taxes recoverable from the refund claimants or does not cover special excise duty refunds. The directorate found that at present, besides ERS, manual processing of refunds was also being carried out at field formations, which was not being entered into FBR''s computer database. Resultantly, the department was facing a threat of duplication in issuance of refunds. This issue needed to be checked to avoid duplication of sales tax refund claims, sources said.
While processing refund claims, ERS does not take into account duties and taxes recoverable from claimants. This is a very serious flaw, which needs to be plugged.
Another major loophole in the system is that the ERS does not cater to refunds under Special Excise Duty (SED). During processing of refund claims, ERS does not recognise any systemic correction flagging some glaring discrepancy or indicating some elements of fraud/mis-declaration.
Sources said that the directorate strongly recommended that through an office order, the Member-IR might specifically assign the over all responsibility of ERS. In this connection, the DG I&I-IR or Chief (Automation), IR wing are the best possible choices. Secondly, a fully-fledged CSTRO may be designated so as to ensure a responsible set up for day to day operations.
Thirdly, a working team consisting of members may be constituted for comprehensive operational & IT review of ERS. The working team may include Muhammad Ashraf Khan, Chief Commissioner RTO Faisalabad; Muhammad Tanvir Akhtar, Director I&I-IR HQs Islamabad; Nadir Mumtaz, Chief (Automation), IR Wing; Najeeb Qadir directorate of research and statistics (DRS) and Hassan Pervaiz, Pakistan Revenue Automation Limited (PRAL).
Sources said that the FBR had always been making all out efforts to facilitate honest taxpayers either by simplifying tax laws and procedures or by minimising human interface in corruption-prone field operations. ERS is one of such efforts aiming at hassle-free, fast track processing of sales tax refund claims of manufacturers and exporters.
The ERS is essentially a function falling in the operational ambit of Inland Revenue Service (IRS) but it has been developed in a way that the said wing remains almost detached from its day-to-day working and operational issues.
Whenever some urgency crops up, even closest stakeholders fail to identify the right forum for remedial measures.
Currently ERS is being run through a stop-gap arrangement wherein apparently DRS Najeeb Qadir is looking after the system, but in his own words, he is "only a cheque-signing machine without exercising any effective control over the system". A dedicated CSTRO, who holds the key in the said system, has not so far been nominated and Najeeb holds the additional charge of this post as well.
Sources said that though ERS has been exclusively developed for the processing of refund claims of manufacturers and exporters, yet on a/c of systemic pitfalls cases of commercial importers are also being processed which need to be checked. The processing of refund claims under ERS is quite lopsided and this assertion is well supported by the following facts. While processing refund claims ERS does not take into account duty/taxes recoverable from claimants. This is a very serious flaw, which needs to be plugged. Sources said that the pre-refund analysis should be strictly based on the laid down parameters.
Firstly, PRA shall be initiated on the basis of some information received through some formal complaint or informal channels, passed on to the officers (not below the rank of Additional Director) of this Directorate General or its Regional Directorates.
Secondly, for initiation of any action under PRA explicit approval of Regional Director is mandatory. Thirdly, no contact whatsoever shall be made with the taxpayers or refund processing tax offices/officers/officials.
Fourthly, the PRA shall be restricted to system analysis, to be conducted through live access to the operating software. Fifthly, Red Alerts shall be generated on the basis of information received vis-à-vis case facts and the additional information gathered by the vigilance cells. These self contained Alerts shall be transmitted directly to the concerned Chief Commissioners/Commissioners and CSTRO and Director HQs I&I-IR.
Fifthly, the Red Alerts constitute an advisory instrument and shall be confined only to statement of facts and brief reasons, which necessitated the generation of the said alerts. Under no circumstances these alerts should be used to hamper the normal refund processing.