ISLAMABAD: Federal Tax Ombudsman (FTO) has analysed that the government has no fiscal space for making pending sales tax refund payments of billions to exporters.

According to a special study report of the FTO office on sales tax refunds, the government usually owes billions of refunds to exporters and has no fiscal space for making that payment.

There is no reason for exporters to believe that they will get their sales tax refunds in due time while their prior refunds remain unpaid, thereby depriving them of liquidity and their own resources which could very well have gone towards modernisation and expansion.

The report further revealed that there are a large number of claims stuck up due to this glitch and all such claims will remain stuck up along with limitation to file future claims. The FBR should review and reconsider eight-time reprocessing to enable all such claims instead of bypassing seven iterations by removing systemic glitches.

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The refund to the exporter against fixed assets shall not be processed through “FASTER” and shall be paid after verification of installation/ utilisation by the field formation. Denying input tax on capital goods or fixed assets having valid goods declaration (GD) or invoice and forwarding the cases by deferring to field formation mostly on account of machinery and its parts will be discouraging factor whereas most of the items are already in section 8 and refund is not allowed as per negative list. It would be better to assess the cases at post refund level.

Expenses incurred on utilities shall be prorated on the basis of consumption between zero rate supplies and domestic supplies. This check will deny input in duplication as declared output tax automatically adjusts input tax against the domestic supplies, the report said.

It must be noted that a significant amount has accrued as “Deferred Sales Tax.” As a matter of routine, a portion of the claims through Sales Tax returns are deferred or rejected by FBR. A large proportion of the amount vanishes into thin air being neither paid nor rejected or deferred. The FASTER system usually raises typical objections and errors in the data, which can be resolved by refund processing officers but at a cost.

Another problem of exporters to first pay taxes and then later on struggle to obtain refunds is an irrational policy measure and a disincentive for several reasons, the report added.

Copyright Business Recorder, 2024