Facilitating exporters: FTO suggests FBR to declare RPOs as exchangeable payment instruments

ISLAMABAD: The Federal Tax Ombudsman (FTO) has strongly recommended the Federal Board of Revenue (FBR) to declare sales tax Refund Payments Orders (RPOs) as exchangeable payment instruments to facilitate exporters.

The recommendation is part of a special study of the FTO Office on sales tax refunds, covering legal, technical, procedural and IT-related issues in sales tax refund payments to the exporters.

This is a first of its kind of study which has addressed the practical problems of the exporters seeking refunds from the FBR.

The study recommended that the RPOs once generated shall not be stopped and the sanctity of the RPOs shall be established to be treated as exchangeable payment instruments.

The FTO’s research analysis further recommended that the RPOs issued by the FBR shall be established to be treated as exchangeable payment instrument, equally available for adjustment within and across the taxes by providing control to the refund claimant. Stopping these legitimate payments of industry when there is high cost of borrowing from banks for exporters is creating frustrations.

The FTO recommended that there is need to establish more strict parameters for low tariff countries such as Afghanistan, UAE and Bangladesh. At taxpayers’ profile refund processing shall be made simpler for 100% exporters. However, as the sales tax return inherently tracks only values not quantity or volumes hence there is always a chance of flying invoice misuse unless quantitative controls are not available at the level of sales tax return, the study recommended.

The study further recommended that the registration profile of refund claimants such as value-added surgical units, sports goods is not updated in refund data and older data is being used for rejection of claims by treating as non-zero rate unit. Updation and profile with reference to exporting PCT should be used. There shall be a sector specific systemic arrangement of negative list based on analysis of input materials for each exporting sector instead of denying product without considering the raw material specific to a sector. There is a large list of raw materials added into negative list.

The study further analyzed that instead of streamlining “FASTER” System, some exporting sectors are excluding from online processing system such as foods, electronics, pharmaceuticals and agriculture products such as rice, confectionary, dairy, ceramics, footwear etc. This will not help boost exports. For all these sectors, delay in getting refunds and lack of facilitation by the government is one of the reasons of not performing up to their potential. While processing Refunds of non-manufacturers or commercial exporters realization of exports is verified through data batches and that creates delays and errors, there is requirement to make it realtime integration with this banking data for refund processing and audit purposes.

The FTO report disclosed that the automation of tax collection as initiated through Iris System, integration of all taxes as conceived in Single Return, linking of income tax and sales tax transactions, updation of integration with customs clearance data and utilization of 3rd party data such as banking transaction and AGPR and utility companies is only the way forward. Rolling back the progress so for made with automated system will not help build capacity rather will only serve short term purposes.

A centralized Risk Analysis system such as CREST, Post refund audit System, POS retail transaction system and Track and trace system shall be improved and strengthened by continuous training of the field formations as a part of capacity building. Another big issue to focus is of flying invoices, where tax is paid for non-export transactions but credit invoice is purchased from the market for non-relevant goods or same goods of end user. The FASTER system is inbuilt for relevancy check against negative list of HS Codes, declared non-admissible to block such refund claim.

Presently, when a claim is deferred or disqualified the same will stuck for seven weeks without any process that also means that taxpayer will not be able to file subsequent claims and mostly the cases will suffer time bar condition. After 7 weeks' time, taxpayer will have to contact concerned tax office under his jurisdiction to get it processed and that is the most difficult phase, consuming time, resources and references. In large number of cases taxpayers contact with Tax Ombudsman offices to get it resolved as in many cases problem relates to technical issues of data or system error. It is therefore.

A legacy system of STARR, where it is a distributed database of tax regions and inter jurisdiction transfer will require transfer of data from one dataset to other data set with multiple error and omission further results into delays and technical errors. STARR manual system is not upgraded to handle transparent processing and mostly dependent upon the processing auditors and has multiple issues due to issues of data synchronization gaps with return system of IRIS.

The FBR has not upgraded Post refund audit system which is an integral part of Refund Processing and post refund audit is managed manually as a result, lack of deterrence through post refund audit system leaves the only option to restrict refund processing, the study added.

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