The idea of issuing promissory notes against refund claims of the exporting industry may lead to a scandalous situation that the beneficiaries have received it after filing a fake claim in connivance with the Federal Board of Revenue (FBR) staff, said tax experts.
They termed it a futile exercise and suggested the government to prefer to pay back refunds instead of paying 10 percent interest on stuck up claims. Any such situation would burden the exchequer further, they added. The government has decided to issue refund bonds (promissory notes) to exporters on annual profit of 10 percent with a maturity period of three years for clearance of backlog of Rs200 billion stuck-up refunds. Huge amount of around Rs 200 billion claimed by taxpayers are stuck in refunds. This causes liquidity crunch for businesses. These refunds have accumulated over a long time. The Section 67A is proposed to be inserted in the Sales Tax Act, 1990, to provide for issuance of promissory notes to claimants at their option.
Tax experts are of the view that the mechanism of promissory notes would defeat the process of scrutiny as the Board would have to issue promissory note against the whole claim. If the FBR is intending to hold a detailed scrutiny of each claim, it would be far better to pay the claim in cash then issuing a promissory note and incur a financial burden on the exchequer, they stressed.
According to the tax practitioners, no fraudulent refunds are possible after automation of the system. However, the only possibility is in connivance with the corrupt elements within the department who ensure their commission at the time of sanctioning of payments.
They said the idea of promissory note would be beneficial neither to taxpayer nor the government. It is merely eyewash. They said if the government can dole out funds for revival of PIA or Pakistan Steel Mills, etc, then why it cannot clear stuck up refunds one time.
According to these circles, an exercise was carried out during the second government of PML-N when the government sought lists of stuck-up refunds from the FBR that was followed by instructions that all refund claims should be released immediately.
Interestingly, they said, the idea of promissory note was not floated by the exporting industry. Instead, the tax bureaucracy has suggested it to the government which would invite embarrassment for the government at the end of the day.
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