The Central Board of Revenue (CBR) Chairman, Muhammad Abdullah Yusuf, has been addressing the issue of income tax refunds to the taxpayers aggressively. While addressing the RCITs Conference held some months back he directed them to forthwith issue income tax refunds to the taxpayers irrespective of the quantum of refund amounts. He gave deadline of one month to clear the backlog of refund and directed the Commissioners to submit a comprehensive report to him.
This deadline was subsequently extended by the CBR. Since then over four months have passed but it is not made public. It is not known of the Chairman has received such report from the Commissioners to the affect that the backlog of the refunds have been cleared by them. If his directives have not been complied with as usual then what action he initiated or intends to initiate against them or their defaulting attitude will be allowed to go as is usually being ignored by the CBR.
The taxpayers are interested to know the outcome of the said exercise because the ground reality has not changed and the taxpayers are denied or their refunds are withheld without assigning any reason.
The issue of income tax refund has became so critical that the Chairman of CBR and even the Chief Executive General Pervez Musharraf of Pakistan has been approached by the taxpayers directly or through their representative bodies requesting them to come for their rescue from the tax officials and press them to release their excess tax money paid to the exchequer.
The situation being so critical since the last over quarter century, therefore, it is necessary to review the history on the issue with a view to identify the root cause for piling up of the refunds by the tax officials.
The Income Tax Ordinance provides for tax deduction at source at various levels on the one hand and non-issue of exemption certificate from tax deduction/collection by the Commissioners to the taxpayers where the tax has been deducted/collected exceeds their tax liability results in refund.
Moreover the taxation officer while finalising the assessment order did not give full credit for tax paid/deducted at source despite the fact that he is furnished by the taxpayers the original tax paid challans etc during the course of hearing or he gave credit for only that much amount of tax which equals the demand of tax determined by him in the assessment creating N.D. in the demand notice.
This situation entails the taxpayer to move rectification application; thereby the refund piles up. Because the rectification is delayed hence the refund is delayed in order to show efficiency by the tax officials that he met the collection target.
Although the tax official is bound to give credit of full amount of the tax paid by the taxpayer or rectify the order on his application within the prescribed time they flouted the law and the taxpayer is to suffer for having ignored material facts available on record.
There is no remedy available to the taxpayer except to send reminders and followup visits to the tax officials because there is no accountability provision in the Ordinance and CBR has proved itself helpless to initiate any action against such defaulting officers.
The Income Tax Ordinance 1979 (Repealed) provided u/s 96 for the entitlement of refund to a taxpayer who satisfies the assessing tax officer that he has paid tax in excess to that he was chargeable.
It further provided u/s 99 that in order to claim refund, a taxpayer was required to apply on the prescribed form. It also provided that in case of failure by the assessing officer to decide the claim applied by the June 30th next following the date on which the application for refund was made, the amount of refund claimed by the taxpayer shall be deemed to be due to the assessee.
This requirement for application to claim of refund was subsequently dispensed with under the new inserted section 100 it was made obligatory for the assessing officer to issue refund voucher along with the order passed by him of the refund amount determined by him in any order passed by him irrespective of whether the taxpayer has or has not made any claim in that behalf.
The assessing officers never comply with this statutory provision. Their attitude always is don't care for the obvious reason that the provision relating to their accountability is missing in the Ordinance.
Under the situation the CBR has been in receipt of a large number of complaints by the taxpayers with regard to late/non-issuance of income tax refunds and therefore, it has issued directives and warnings to the tax officials through dozens of circulars/letters during the last quarter century on issuance and processing of refunds, relevant extract from over half a dozen of them are reproduced here to show the inability of CBR to enforce the directives issued by itself besides non-compliance of statutory provisions on the subject matter by its subordinate tax officials.
1. C.NO 3 OF 1978 DATED 2/2/1978 ISSUE OF REFUND VOUCHERS:
".......the Board has decided that where on assessment any refund is found due to any assessee refund voucher account payee only should be sent to the assessee by registered post upon completion of the assessment."
2. C.NO.4 OF 1983 DATED 16/4/1983:
"(ii) IAC should inspect the refund register as well as the relevant files to ensure that these registers are being maintained properly. They should also make sure that refunds are issued without delay.
(iii) In respect of pending claims, it has been decided that these must be disposed of by the 31st May, 1983 and a certificate to that effect be furnished to the CBR."
3. C.NO. 15 OF 1983 DATED 24/12/1983:
"(vi) Ordinarily refund voucher/order should be issued within two months from the date of assessment/claim.
3 The IAC should check the refund registers regularly at least twice a month to ensure that the matters concerning refunds are being attended to promptly by the assessing officers.``
4. C. Letter NoITB-3(21)/85.dated 24/11/1985 VERIFICATION OF PAYMENTS BEFORE ASSESSMENT:
``While preparing IT-30, credit for the payments made by the taxpayer is required to be given. Credit for tax paid once given legally becomes final. Thus subsequently the tax already paid shown in the IT-30, cannot be challenged by the department nor the department, for the purpose of refund, as the tax-payer concerned to produce further evidence in support of the tax claimed and shown to have been paid.``
5. RCITs CENTRAL REGION (Lahore) INSTRUCTIONS FOR ISSUE OF REFUNDS, dated 4/10/1986:
``....It may be brought to the Assessing Officers that a close watch shall be kept on the issue of refunds and wherever a case of undue delay of refund comes to the notice of the higher authorities, disciplinary action will invariably be taken against the defaulting officer."
6. C. NO 2 OF 1998 DATED 16/2/1998:
"(f) Refund of amount below Rs 200,000 in each case should be made immediately.
(2) The verification of payments/deductions should be made during the assessment proceedings so that the refund may be issued in orderly and transparent manners. No infringement of these instructions by any assessing officer shall be treated as "inefficiency" and "misconduct" and visited with strong penal action under the Government Servant Rules 1973``
7. C.NO 2 OF 2000 DATED 8/2/2000: INCOME TAX REFUNDS:
"Lately the Board has been receiving large number of complaints with regard to late/non-issuance of income tax refunds. Even the Chief Executive took cognizance of the enormity of the problem and referred the issue in his address to the nation on 15/12/1999.
(i) outstanding refunds may be issued expeditiously or at the most within three months of the date when they become due or are deemed to be due so that the department does not have to incur the liability of payment of compensation and taxpayers also get their due refunds.
5. Infringement of these instructions by any assessing officer shall henceforth be treated as "inefficiency" and "misconduct" entailing strong penal action under the Government Servant (Efficiency and Discipline) Rules 1973.``
It will be observed from the above directives issued by the CBR from time to time pertain to that (i) the verification of tax paid be made during the assessment proceeding, (ii) full credit of the tax paid be given in the IT-30 (iii) the refund determined at the time of assessment be refunded forthwith to the taxpayer and (iv) the defaulting assessing officer in carrying out these directives will be subject to disciplinary action.
Practically all of the above said directives and statutory provisions in respect of refunds are flouted by the assessing officers but none of them, as directed by the CBR itself, is made subject to disciplinary action resultantly the graph of the grievances of the taxpayers has been going up and consequently the refunds are piling up.
THE INCOME TAX ORDINANCE 2001 (Ordinance): The CBR found itself helpless in the implementation of its own directives in respect of processing of refunds, so it has managed to remove from the statute of tax law the provision to issue refund expeditiously along with the assessment order as provided u/s 100 of RO.
Now the taxpayer u/s170 of the Ordinance has been made responsible to apply to the Commissioner for a refund of the excess tax paid by him during the tax year. This provision is made in view of introduction of the concept of the Universal Self-Assessment (USA) in the Ordinance whereby all the returns filed shall be qualified for acceptance under USA, shall be deemed to be the assessment order made and issued by the Commissioner on the date the return was furnished.
Even then since the return shall be deemed to the assessment order issued by the Commissioner, the refund claimed by the taxpayer in the return should have been accepted and the refund voucher should have been issued expeditiously to the taxpayer of the amount of refund claimed in the return. In case,
Where the Commissioner has reason to disagree with the refund claimed in the return by the taxpayer, he shall u/s 120(3) of the Ordinance issue a notice to the taxpayer informing him of the deficiency, if any, found by him instead of requiring the taxpayer to apply for refund afresh.
Further the S.170(3) provides that the Commissioner shall serve on the taxpayer applying for refund, an order within 45 days of receipt of a refund application of his decision that whether he accepts his claim or dismisses his application of refund.
This simple exercise of verification of taxes paid by the taxpayer with tax paid challans etc with the refund claimed, the Commissioner will require 45 days which is too long period to suffer by a taxpayer. It may be reduced to 15 days from the date of return furnished to him within which he should pass an order.
Moreover the Ordinance is silent on the period of refund to be issued to the taxpayer. The S.170(4) should provide that the order of the Commissioner shall be accompanied by a refund voucher of the admitted amount of the refund determined by him. And for the amount of refund, he does admit, the reason with evidence be recorded in his order to justify his refusal to it.
Further the S.170(5) grants the right of appeal to the taxpayer in case he is aggrieved by the order passed by the Commissioner or he failed to pass an order within 45 days. In view of the practice generally prevailing that the Commissioner of Appeal being a subordinate of the CBR, he normally sets aside such order remanding back to the assessing officer with the directives to verify the taxes paid.
Thereby the Commissioner being the goalkeeper on one side and the CIT-A on the other and the taxpayer as a football will be kicked off from one side to the other. Thereby at least the first generation of the taxpayer will not get the refund of his excess tax paid during the tax year to the exchequer.
Moreover the S.170(5)(b) provides for appeal by the taxpayer in case of failure of the Commissioner to pass an order within 45 days.
It is not understood why it is left to the mercy of the Commissioner to pass on order or ignore it. Such absolute powers without corresponding liability of the Commissioner to make him accountable for his failure to attend the lawful right of the taxpayer, will enhance in efficiency, corruption and male administration in the taxation system.
The S.171 provides time-limit of three months during which the Commissioner is required to issue/pay the refund due to a taxpayer. This timeframe does not match with the time-limit of 45 days specified u/s170(4) for delivery of the order by the Commissioner.
It is not comprehensible why further 90 days will be required by him to issue refund to the taxpayer. Further S170(1) provides that a refund due to a taxpayer is not paid within three months of the date on which it becomes due will be entitled for compensation on refund amount not paid; read this provision with S.170(4) which makes the taxpayer to wait for 135 days to get the refund without any compensation thereon.
Is it not an excess and injustice to a taxpayer who is punished for excess payment of tax to the government. It is a computerisation age which has made the system speedy and efficient yet the CBR is bent upon to make its subordinate tax officers inefficient allowing them to sleep over the issue over a long time.
The compensation to be paid from the date the 15 days expired and refund is not issued alongwith the order of the Commissioner providing in the S170 (4) that the order of the Commissioner shall be accompanied with the refund voucher of the amount of the refund admitted by him.
The Finance Act 2004 has reduced the rate of compensation payable u/s171 on payment for delayed refund to 6% from 15% provided in the RO. It's one more stick beaten to a taxpayer who is penalised for his gracious payment of taxes.
This step is a premium to the assessing officers for their inefficiency and mal-administration as has been held by the Federal Ombudsman in various cases of delayed refunds. This provision will encourage them further to delay refunds. Moreover, the rate of compensation @ 6% is not only lower than the market rate but is half the rate of 12% additional tax chargeable in case of non-payment of tax by a taxpayer.
It is witnessed that CBR can go to any extent to squeeze the taxpayer. Instead of giving any relief to the taxpayer or taking any measure to ensure that he is issued the refund expeditiously, his belt is tightened up and placed on the mercy of the assessing officers which will enhance the rate of corruption.
RECOMMENDATIONS: As the CBR Chairman has asked the RCITs that genuine income tax refunds of any amount should be issued on top priority basis, the line of action in order to achieve the desired result the following few recommendations are proposed:
(1) Since the in-house tax machinery has failed to deliver the goods, a Task Force comprising Member-Tax Policy, RCITs/Directors General, members from judiciary, Tax Bars, ICAP/ICMA be constituted. The term of reference should include.
(2) (i) To appoint out-course auditors with terms of reference to conduct the audit of the records of refund and ensure whether the records of the refund are maintained as prescribed by the CBR from time to time ; (ii) Scrutinise the refund pending cases, (iii) prepare the lists of the taxpayers whose genuine refunds are withheld on the ground of technical objection or without any genuine reason along with the compensation becoming due thereon (iv) other relevant matters.
(3) To examine the cases of infringement of the CBR directives or statutory provisions of the Ordinance in respect of refund by the assessing officers with a view to determine whether they be treated inefficient or misconduct and are liable to penal disciplinary action as envisaged by the CBR in its various circulars.
(4) Recommending the CBR to issue an advertisement in dailies as per its C.NO.4 of 1983 dated 16/4/1983, informing the public to approach the Task Force to obtain their refund voucher of the refund if pending any.
(5) to review the provisions of sections 170 and 171 of the Ordinance with a view to suggest amendments therein in respect of.
(a) reduction of period from 45 days to 15 days.
(b) to issue refund voucher of the admitted amount of refund along with the order,
(c) the provision of accountability in case the commissioner fails to pass an order
(d) the rate of compensation on delay refund should not be less than the rate of 12% equal to the additional tax.
(e) the period for compensation should be taken from the expiry of 15 days allowed to the Commissioner to issue order for refund u/s170(4).
(f) provision be made in the Ordinance to the effect that the assessing officer shall bear the burden of compensation to be paid on delayed refunds.
(g) To provide for under section 170(5)(b) that in case of failure by the Commissioner to pass an order within the prescribed time, the refunds claimed in the return by the taxpayer shall be deemed to have become due to him.
The measures suggested above, if taken, will go a long way in establishing the credit liability of the CBR.