ISLAMABAD: The Auditor General of Pakistan (AGP) has declared that the slack monitoring, absence of post-refund audit, deviation from law and weak internal controls have caused serious issues in payment of refunds during 2020 including excess/double payments through electronic refund payment system of the Federal Board of Revenue (FBR).
The AGP has conducted special audit of refund and duty drawback sanctioned by the FBR and its field formations for 2020.
This latest AGP report has been compiled in April 2021.
The FBR sanctioned income tax refund of Rs65 billion, sales tax refund of Rs234 billion, and Rs22.94 billion as duty drawback during the period January to December, 2020.
A sample of 8,819 cases was selected out of 97,222 cases for Inland Revenue which constituted 9.07 percent of the total population and selected 28,550 cases out of 339,549 for duty drawback of customs which constituted 8.41 percent of the total population.
These samples pertain to four Large Taxpayers' Offices (LTO), one Medium Taxpayers' Office (MTO), two Corporate Tax offices (CTOs), six Regional Tax Offices (RTOs), six Model Customs Collectorates (MCCs) located at Lahore, Gujranwala, Sialkot, Faisalabad, Multan, Islamabad, Peshawar, and Karachi.
During audit activity at FBR (HQ) and its field formations, production of record remained an issue.
Data related to FBR (HQ) for instance criteria for selection of refund claims for payment was not produced at all.
Rest of the data was also not in the format to facilitate analysis.
At the field formation level of FBR production of record was not satisfactory.
Further, most of the record was produced towards the end of field audit activity.
These limiting factors posed a major challenge for audit in formulating opinion on the refund and rebate claim processing.
Field formations of FBR provided record of only 1,768 out of a sample of 8,819 cases of Inland Revenue showing that requisite record in 7,051 cases was not provided to audit, report stated.
In the absence of such data, Audit is not in a position to determine whether all standard procedures as prescribed under the law were observed for such disbursement.
The audit has found that the refunds and rebate were not processed in timely manner in many cases and there was no monitoring mechanism to rectify the situation.
Issues such as excess payment and double payment through electronic refund payment system were also recorded. Deviations from substantive law were also recorded in many cases.
"Overall, audit is of the opinion that slack monitoring by Board and weak internal control environment has caused serious issues in the process", special audit report said.
Audit observed failure of controls in payment of refund through electronic refund processing systems.
It was noted that in 827 cases, in seven field offices of FBR, excess amount of sales tax refund was allowed by the system than claimed, resulting in excess payment of refund of Rs 566.47 million. Further, in two cases of RTO Sialkot refund was also processed despite the fact that the exports against which refund was claimed remained unverified or deferred by the system.
Post Refund Audit is an important tool to check the authenticity of refund claimed after it has been paid by the sanctioning authority.
Ten field offices of FBR, in 4,998 cases sanctioned sales tax refund of Rs54,044.05 million during January, 2020 to December, 2020 but post-refund audit was not conducted.
It was also observed that post-refund audit cell in field offices was not functional and refund files were kept unattended.
In absence of this audit, assurance regarding authenticity of refund paid could not be ascertained, report highlighted.
Under section 170(4) of Income Tax Ordinance, 2001, FBR authorities were required to check the validity of refund before its sanction.
In 783 cases under 15 field formations of FBR, it was observed that the refund was sanctioned without checking the admissibility of allowable tax credit and deductible expenses, valid assessment order, calculation of tax at proper rate or adjustment of previous years' refund. This resulted in inadmissible sanction of refund amounting to Rs12,326.77 million during the period from January to December 2020.
The special audit report said that in compliance to Prime Minister's relief package for COVID-19, FBR issued various guidelines to their field formations which stipulated that a taxpayer was entitled only to get maximum refund of Rs50 million in a tax year.
However, three field formations (LTO, MTO and CTO Karachi) awarded refund to various taxpayers in excess to the limit of Rs50 million in a single tax year by splitting into various orders to avoid prescribed ceiling involving an amount of Rs5,712.03 million.
Moreover, as per the said guidelines, payment of refund was allowed for only those claims which pertained to TY 2014-19.In two cases in MTO Karachi, refunds to the tune of Rs14.743 million were allowed for the claims relating to TY 2012 and 2013.
Three field formations of FBR (CTO,RTO-I& RTO-II Karachi) issued refund of Rs 571.98 million in two hundred seventy seven (277) cases despite the fact that the same were already sanctioned and paid by FBR (HQ) Islamabad through direct transfer to taxpayers' bank accounts.
This resulted in a loss of Rs571.98 million.
Audit was of the view that IT system failed to check the double payment of refund, report added.
Timely issuance of duty drawback has been ensured through Rule 222 of the Customs Rules, 2001 which provides timeframe for processing and payment of duty drawback.
Three field formations of customs processed duty drawback claims with delay ranging from 30 days to 2,614 days.
It was also observed that 296,388 cases involving an amount of Rs25,825.96 million remained unprocessed without recording any reasons.
An analysis of duty drawback cases received during Audit, revealed that Model
Customs Collectorate (MCC), Sialkot could process only 72 percent, MCC (A&F) Peshawar 50 percent and MCC, Allama Iqbal International Airport, Lahore 82 percent cases during the period under audit.
Audit observed several significant internal control weaknesses.
For instance, audit was not provided any proof of audit of duty drawback cases either by Directorate of Internal Audit or Directorate of Post Clearance Audit.
The amount of duty drawback was reported less by MCC, Peshawar and Sialkot to FBR by Rs559.87 million in 12,262 cases, the audit report concluded.
Copyright Business Recorder, 2021
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