Some of the Regional Tax Offices have expressed concern over the sudden increase in the sales tax refund claims under the Expeditious Refund System, reflecting that something is seriously wrong with the system. Sources told Business Recorder here on Tuesday that few Chief Commissioners have apprehended misuse of the ERS and the system needs to be checked.
One of the Chief Commissioners of Regional Tax Office had informed the last Chief Commissioner Conference that around 50 percent of the refund payments have been made through the ERS. It is interesting to note that no system alerts are available to RTO to block suspected refunds under the ERS.
However, there is a major increase in sales tax refund claims under the new system. Beside, few Chief Commissioners of the RTOs, similar kind of discrepancy in the ERS were pointed out by the then Chief Commissioner Muhammad Raza Baqir Regional Tax Office, Karachi. He said that the sales tax refunds paid through the system have shown a steep increase of 220 percent against export growth of 62 percent in some patches of 2010-11, showing abnormal trend in payments.
In zero-rated sectors, refund is generally claimed on packing material, few chemicals and stores. Historically, refund on zero-rated/ export sale was around one percent, whereas in the expeditious refund system there is no benchmark. There are also apprehensions of the inflated refunds as there is substantial increase in the refund of ERS claimants, sources said.
Chief Commissioner further pointed out that in the ERS anomalous refund claimed are visible in the electronic system. For example, some of the risky areas in the ERS showed that the purchase/consumption of inputs after the date of export is not checked. The full input tax adjustment claimed against fixed assets/capital goods instead of instalments as per the law. The refund processed on invoices of insurance premium on cars/theft/fire. The relevance of tax invoices with the finished goods is not checked. Under the electronic system details of partially deferred amount was not provided to RTO for further processing of refund claims.
Sources said that the recovery option is available with the refund claimants instead the option should be system-oriented to make the payment after deduction of arrears. The invoices of unconsumed stock/carry forward amount are not subsequently checked, if suppliers are suspended later, ERS will not stop the payment against such invoices.
Chief Commissioner has also pointed out that the negative List generated is 2- 3 years old, needs to be updated to ensure the payment of refund against actually deposited sales tax. There is an immediate need for countrywide analysis for invoice verification for which the RTOs can get developed computerised input tax verification module. These anomalies in the ERS need to be addressed by the Board on top priority basis, sources added.