To streamline the entire refund verification and sanctioning process, the Income Tax Bar Association (ITBA) has recommended that a comprehensive refund mechanism may be evolved in accordance with section 10 and sales tax rules 2006. At present, huge genuine export and non-export refunds are blocked by the department creating liquidity problems for taxpayers besides putting them in litigation.
Several core issues pertaining to refunds are: for refunds not replicated over STARR, the department desires the refund claimant (buyer) to furnish seller's return, accounts, statements, summaries. This requirement does not find place in Rule 38 of sales tax Rules 2006.
In the absence of any legal support, the seller declines to furnish his returns, summaries and other statutory declarations with the refund claimant. In certain cases, the department directly contacts the respective supplier to verify the genuineness of the refund claim, however, in other cases, the onus of verification is transferred upon the refund claimant.
ITBA has therefore recommended that rule 38 may be amended to include list of supplier's documents for cross verification of payment of output tax by seller. Taxpayers are facing problems to get their genuine refunds on building materials admissible after the suppression of SRO 578 (10/98. But, the Regional Tax Office (RTO), Karachi has placed certain other conditions attached to the refund claim such as filing of approved building plan, BOQ, counter confirmation from respective trade association, etc.
Therefore, it is proposed that the relevant standing order issued by RTO may be withdrawn and refunds may be allowed on building materials without any exception. ITBA further proposed that a panel, identical to Alternative Dispute Resolution Committee (ADRC), comprising of business community may be formed by FBR and all disputes regarding the value of supply may be referred to such committees under section 2 (46)(e).
There is no provision in the statute governing both visible and non visible wastage that occurs during manufacturing process. The audited accounts also do not separately disclose wastages, rather the same is reported as part of stock consumed and nominal cases are established against the taxpayers on account of difference in stock figures, which usually is due to the element of wastage.
It is therefore, proposed that industrial notes may be drawn by FBR in consultation with trade, industry and tax consultants encompassing business processes of significant sectors and standard ratios of wastage occurring during such processes.
Furthermore, ITBA has given suggestions pertaining to several sections of the sales tax act, which are: A minimum period of suitable time be included in sub-section (d) and (f) of section 2 (41) to correspond the provisions with treaty provisions. A proviso should be added for dispensing with the condition of NTN for amount received from abroad because practical difficulties arise in respect of payment received as loan or gift from non-resident to family members.
The condition of holding an NTN should be abolished and advance rent received is included sub-section (4) of section 39(3) subject to just and reasonable restrictions.
The limit of investment rebate should be increased to Rs0.5million to encourage investment for industrialization. The valuation table of the collector should be substantially increased in accordance with the actual market price to eliminate the chances of corruption.
If the application is rejected by the commissioner of income tax, the right of representation before the director general may also be introduced to redress the problems of taxpayers. Reimbursement of expenses between group companies should be exempted from the deduction of tax. Widows and senior citizens should be exempted from tax on behbood certificates and pensioners benefit accounts. These suggestions would help board to make some amendments in the sections to facilitate taxpayers besides encouraging others to induct in the tax net.