The integration of taxes in Federal Board of Revenue (FBR) has failed to check the refund cases where tax department has issued huge amount of income tax refunds despite outstanding sales tax liabilities against the same taxpayers. Sources told Business Recorder here on Friday that the reform initiative of the integration of taxes was done with the objective to simultaneously make accessible information of sales tax, federal excise duty and income tax to the concerned officials.
Through integration of taxes, the information about all three taxes ie income tax, sales tax and federal excise duty paid by taxpayer would be accessible to the tax department. Tax officials can check whether a registered persons demanding income tax refund has cleared his sales tax liabilities. For example, tax official can check record of a sales tax defaulter, who had applied for the income tax refunds.
On the other hand, if a person has not paid income tax and applied for sales tax refund, the tax official must know about the status of sales tax as well as income tax liabilities. Despite integration of taxes, Directorate General of Intelligence and Investigation Inland Revenue FBR has unearthed a unique case where the tax department has issued huge amount of income tax refund where sales tax liabilities have not been cleared by the refund claimant. It was the responsibility of the tax officials to check the status of sales tax/federal excise payments by the registered person, who obtained income tax refunds.
Either the electronic system of tax integration is not working properly or tax officials are not properly trained to simultaneously access information about all three taxes. There is a possibility that the refund processing officer has deliberately ignored the sales tax liabilities of the refund claimant and only focused on payment of income tax refund. There is a need of the implementation of the 'integration of the Inland Revenue taxes" in letter and spirit.
In this connection, the Directorate General of Intelligence and Investigation Inland Revenue FBR has highlighted a specific case of refund payment to the Chief Commissioner Regional Tax Office Peshawar. According to the directorate, regional office of I&I-IR Peshawar's letter rightly points out a major pitfall in the current state of integration of in land taxes, as it depicts a case where income tax refund of Rs 5.059 million has been issued, completely ignoring the corresponding chargeability of sales tax of Rs 6442 million.
It is not one odd case rather it reflects the mindset of our field formations where either mutually exclusive & separate streams of income tax and sales tax are being maintained unintentionally or field officers have yet not been groomed in integrated handling of all inland taxes, or the vested interest continues to destabilise the policy of integration and tax reforms.
Chief Commissioner RTO Peshawar is requested to look into the instant case with the view to fix the responsibility for the said lapse; retrieve the said loss of revenue; identify other such cases in the jurisdiction of RTO Peshawar and circulate clear cut instructions for the integrated handling of all such cases. The said Chief Commissioner should also evolve internal control system at RTO level so that without for any external intervention any such eventuality is addressed.
Sources said that the Additional Director Intelligence and Investigation Inland Revenue Peshawar informed the directorate FBR that the income tax refund at Rs 5,059,750 for tax year 2010 was issued to the taxpayer after approval of Commissioner IR Zone-III, RTO, Peshawar. The perusal of record revealed that the taxpayer is engaged in the business of supplies of goods and transport services to a cement manufacturer. Break-up of receipts for tax year 2010 declared in income tax return shows that the taxpayer has received Rs 215,647,646 against supply of goods and services.
Furthermore, perusal of record for the period relevant to tax year 2011 and 2012 revealed that the taxpayer has been issued with exemption certificates under section 159 of the Income Tax Ordinance, 2001 read with clause 126F of Part-I of 2nd Schedule to the Income Tax Ordinance, 2001. The details revealed that the taxpayer is a wholesaler/distributor and is liable to be registered under section 14 read with Sales Tax Rule No 4 of chapter 1 of Sales Tax Rules, 2006. Aggregate tax liability @ 8 percent is worked out as: Total supplies for tax year 2011, Rs 25,716,000; total supplies for tax year 2012, Rs 54,807,000; total, Rs 80,523,000 and sales tax @ 8 percent comes to Rs 6,441,840.
However, it has been observed while processing the exemption certificates and the refund claims none of the officers pointed out the non payment of sales tax on these supplies as the unit was liable to be registered under the Sales Tax Act, 1990 and should have been proceeded against under the law.
It is requested that immediate action may be initiated under section 11 of the Sales Tax Act, 1990 against the taxpayer. In addition to this the recipient of supplies of the cement manufacturer may also be held responsible for the non payment of sales tax liability under section 8A of the Sales Tax Act, 1990 being joint and several tax liability, Additional Director Intelligence and Investigation Inland Revenue Peshawar added.