A policy document of the Federal Board of Revenue (FBR)-first of its kind on elimination of bogus/dubious sales tax/income tax refunds-disclosed that powerful lobbies and influential groups are playing havoc with the economy and their role in organised corruption has become the hallmark of bogus/dubious refund claims, involving huge amounts of money.
Sources told Business Recorder here on Wednesday that the FBR has dispatched the policy document on fake/bogus refunds to the Chief Commissioners of the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to check the menace of bogus/dubious sales tax refunds on the guidelines given in the policy document. This is for the first time that such a document has been prepared reflecting the ground realities, business environment/tax culture and practical difficulties faced by the tax officials while processing of refunds claims.
The special vigilance departments of the FBR would carry out detailed scrutiny of each and every refund claim where payment exceeds Rs 500,000 to check the role of sanctioning authority, if any, in obtaining 'speedy money' etc, the FBR said. According to the policy document, FBR Member Inland Revenue and Director General of Intelligence and Investigation Inland Revenue Shahid Hussain Asad said that over the last one decade issuance of bogus/dubious sales tax and income tax refunds has not only gravely tarnished the public image of the department, it had also dug deep the roots of corruption and criminal connivance within the organisation.
Invariably, major scams involving massive loss of revenue rocks the department every year, leaving behind only a plethora of legal proceedings, but without any tangible results. Another unique feature of this stigma has been the replication of crime V patterns in different field formations, meaning thereby that while the criminals benefited from each other's experience/expertise, no unified internal control mechanism could be devised by FBR to counter all such tax frauds. As the lack of internal accountability mechanism has mainly encouraged the recurrence of all such crimes, this policy document precisely aims at the analysis of the aforesaid departmental apathy. No analysis can be meaningful unless it is followed by a clear roadmap providing the much-needed solution, the FBR said.
(1) How the internal system of checks and balance failed in FBR. The FBR said that the Internal Audit is the main artery of any internal control mechanism but unfortunately over the years this function has been relegated to an inferior position within the departmental hierarchy. Practically, this toothless forum has been converted into a dumping ground for the undesirable/inefficient/escapists and misfits within the department.
Secondly, excessive and out of proportion emphasis on Taxpayers' facilitation had also contributed to the phenomenon of bogus/dubious refunds because in the garb of facilitation black sheep within the department very conveniently joined hands with the external fraudsters.
Thirdly, the faulty automation and corruption-prone software applications further accelerated the pace of the said crime. The connivance of IT personnel was yet another angle to this multifaceted problem. Fourthly, the departmental inquiry mechanism plagued with negative spirit decor, safarash, corruption, and nepotism provided impetus to the on-going crime. Even cases with solid documentary evidence were eventually compromised.
Fifthly, realignment of the department on functional basis grossly eroded the sense of ownership and responsibility within the department and committal of the crime is now much easier.
Sixthly, powerful lobbies (internal/external) played very negative role and gang corruption has become the hallmark of these bogus/dubious refunds. Seventhly, greed and the lust for money, currently prevailing in the society also gravely impacted FBR and other government departments, the FBR said.
2. How to face and address the aforesaid challenges? The FBR said that currently the issuance of refunds has assumed a very complex shape. While the delay in issuance is vehemently agitated by the taxpayers, the quick processing mostly entails issuance of bogus/dubious refunds. Some mechanism needs to be developed wherein the genuine tax payers are facilitated through a signal-free refund issuance system, but fraudulent claimants and their connivers are tracked vigilantly. Moreover, the genuine refunds are not delayed unnecessarily, but the bogus claims are either blocked or contested by the department with full force.
The field offices (RTOs/LTUs) are free to exercise their legal powers with respect to the issuance of refunds, but FBR's oversight/monitoring mechanism should be in place to ensure that proper post-refund checks are enforced, the FBR said.
3. What should be the foolproof Refund Monitoring Mechanism? The FBR explained that learning from the past experiences, Directorate General I&I-IR has devised a Post-Refund Monitoring Mechanism which would not only facilitate the quick processing of refunds but would also effectively combat the menace of bogus refunds.
Refund Monitoring Mechanism: This monitoring mechanism involves following steps. Constitution of Vigilance Cells at Karachi/Lahore/Faisalabad and RWP/ISD. Small sized Vigilance Cells shall be established at Regional Offices of DG I&I-IR. Each Vigilance Cell shall be comprised of two Senior Auditors (Sales Tax) and one Inspector (Income Tax). Mobile Vigilance Cells can be constituted for other stations on as and when required basis, the FBR said.
Vigilance Cells: Through discreet random checking and cross matching of information, Vigilance Cells, Directorate General I&I-IR would identify the dubious refund claims. Even prior to the issuance of refunds Red Alerts can be issued simultaneously to RTOs concerned and Central Sales Tax Refund Office (CSTRO) highlighting the dubious nature of the claims/claimants, FBR said.
Post-Refund Monitoring: In cases where refund payment exceeds Rs 500,000 Vigilance Cells, I&I-IR can conduct post-refund check. This check would cover the following aspects. The genuineness of refund ie claim vis-à-vis on ground position especially the fact of deduction/deposit of tax in Government Treasury. The compliance of legal/statutory obligations would be seen in major refund cases. During the post-refund monitoring, Vigilance Cells would check the conduct of the processing officers/officials (speed money/Bribery). There would be Bank A/C 'trail' where refund has been deposited, FBR stated.
Access to Sales Tax and Income Tax Refunds records (Hard/Soft): Vigilance Cells, Directorate General I&I-IR need access to the relevant record and software. For step at para (b) above access, only to the software is required, whereas for step at para (c) above access to the physical record is also required, the FBR said.
The Vigilance Cells engaged in the post-refund monitoring would not contact the taxpayer in any case. In the cases of dubious refunds normally record is misplaced or destroyed. Through action, the department will have a set of parallel record which would facilitate all the subsequent proceedings.
4. How to enforce the aforesaid Monitoring Mechanism? The FBR stated that the monitoring function by Directorate General I&I-IR does not entail any legal action by the said agency; rather all legal actions shall be taken by the concerned office/section as provided under the relevant statute.
All pre-refund alerts against the suspected claims generated by Dte.General I&I-IR shall be communicated confidentially to the concerned authorities. If the concerned authority is satisfied about the genuineness of the claim, the same may be processed accordingly. At the stage of Post-Refund Chock the true picture would be ascertained, FBR said.
All field formations are directed to extend full co-operation in this fight against corruption. As no intervention in the statutory domain of the field formations is involved, therefore non-co-operation at post-refund checking would be construed as indiscipline. "If we fail to develop our effective internal controls, external interventions would be inevitable," the FBR added.