A major loophole in the newly introduced Expeditious Refund System (ERS) of the Federal Board of Revenue (FBR) is the absence of proper procedure of Post Refund Audit (PRA) of the admissible refund claims cleared through the system.
Sharing experience of the newly introduced ERS, Arshad Shahzad, a Karachi-based chartered accountant/tax advisor of textile sector told Business Recorder on Friday that the entire scheme of the Reformed General Sales Tax (RGST) depends on the speedy payment of refunds under the ERS, which has removed most of the errors during testing phase and now claims are being paid to the extent of admissibility through the electronic verification system. "There is no doubt that the system has remarkably improved by the FBR during recent past," he remarked.
However, there are still some issues, which need to be addressed by the FBR on priority basis. Presently, PRA has to be conducted by the field formations as soon as the claims have been processed and sanctioned. The clearance of the sales tax refund is directly subjected to the PRA to be conducted by the field formations, but the FBR has not clearly laid down procedure of PRA which is necessary for authenticity of the already cleared refund claims. The FBR should give some clear guidelines to the field formations for the post refund audit of the claims declared as admissible under the ERS. The reliability of the profiles of the exporters mostly depends on the result of the PRA. Presently, there is delay in the PRA of the registered manufactures-cum-exporters which needs to be checked.
The stock consumption verification is also not properly done under the ERS. The PRA process also involves stock consumption verification which is an important part of the ERS. There is a condition that the refund should be claimed only to the extent of stock consumed. However, during the post refund audit, there is no proper procedure for verification of the stock consumption.
Another important issue is the verification of Mate Receipt (MR) from the shipping lines/customs department for determining the authenticity of the refund claim. In best Value Added Tax administrations, the electric refunds have been paid on the basis of input-output verifications, however, there is no requirement or condition of checking of Goods Declarations or MR from the shipping lines/customs department. It has to be verified whether the input has been accurately claimed, but there is no need of verification of GDs from customs department.
He said that the ERS has facilitated the manufacturers-cum-exporters in many ways. The refund applications have been promptly acknowledged through the electronic system. The exporters immediately receive electronic intimations after filing of refund application which totally ends physical interaction between the tax officials and the exporter. Secondly, the system promptly raises discrepancies about the input-output and verifies data on the purchases and sales, which gives ample time to the exporter to remove the discrepancy.
When contacted, FBR officials said that the "Post-Refund Audit" of VAT claims would be gradually reduced with the implementation of the Expeditious Refund System for prompt issuance of refund cheques to the registered units. The system would not conduct 100 percent audit of all claims filed electronically through the Electronic Refund Claim (ERC). In the first phase, all claims would be subject to the "Post-Refund Audit" in the manner of desk-audit to verify the documents and secondly, the authenticity of the FBR system would also be checked through this "Post-Refund Audit". This is being done to check the working of the electronic system under ERC submission. Once the system has been fully implemented, selective audit would be done on the basis of risk-based parameters. As the taxpayer is no more required to submit invoices, credit notes, debit notes, goods declarations, bank credit advices, etc for obtaining sales tax refund, the department would only compare the documents to check the authenticity under the electronic refund system, they added.
Under the ERS, taxpayer will declare that the amount claimed as refund relates to sales tax paid on raw materials consumed in the exported goods and the amount being carried forward relates to sales tax paid on raw materials presently in stock with the registered person.