Federal Tax Ombudsman (FTO) has strongly recommended to the Federal Board of Revenue (FBR) to amend fiscal laws in budget (2015-16), separate functions of FBR and Revenue Division, expedite payment of refunds, hassle-free environment for claimants and streamline system of sales tax registrations and de-registration. Talking to Business Recorder at the FTO Office here on Wednesday, Abdur Rauf Chaudhry Federal Tax Ombudsman shared his vision and initiatives for bringing key improvements in the taxation system.
The FTO has submitted its budget proposals for 2015-16 to the FBR. It is hoped recommendations would be made part of the Finance Bill (2015-16) to facilitate taxpayers. The refund is the taxpayer's own money which should be returned to the taxpayers as per law. The FBR should not retain the money of the taxpayers and suitable amendments have been proposed in the law to ensure speedy payments of refunds. The timely processing of claims is also an important issue for the FBR, he said.
It is also recommended that the functions of the FBR and the Revenue Division should be separated. The FBR should be engaged in operational functions and role of policy making should rest with the Revenue Division. At presently, FBR is also engaged in making tax policy and its implementation in the field formations, Abdur Rauf Chaudhry said.
FTO supported restoration of the Circle Based System under which every tax official has detailed information about the taxpayers falling under the jurisdiction of his area. Abdur Rauf Chaudhry highlighted that the tax department should provide proper opportunity to the taxpayers before de-registration, suspension or cancellation of sales tax registration of a person. The de-registration of taxpayers should not be done without providing opportunity by the tax department.
FTO also proposed that the appellate authority like Commissioner Appeals and Inland Revenue Appellate Tribunals should be made independent so that they could give decisions impartially. The Commissioner Appeals be directly brought under the purview of Law and Justice Division. The administrative and procedure changes should be brought so as to make the role of Commissioner- Appeals more independent and authoritative.
FTO has further stated that the complaints have received that the sales tax registrations have been suspended in cases where supplies have been made to the persons who were active, but later blacklisted. When business was carried out, the supplier was active on the FBR Portal. If later the unit is blacklisted it is not the fault of the taxpayer. Such kind of phenomenon needs to be checked, Abdur Rauf Chaudhry added.
In the Own motion case number 2 of 2014, FTO has recommended the FBR for broadening the tax base, some arrangements have been made by FBR and notices are being generated through its Head Office. A Director General for Broadening Tax Base (BTB) has been appointed for this purpose. A Commissioner BTB in each RTO is authorised to receive compliance of notices from the Head Office. The information contained in these notices has been mostly found to be generally deficient and incorrect. Thus no worthwhile results could be achieved despite effort made in this connection. The exercise has not yielded the desired result but has created problems for the taxpayers due to wrong/incomplete information and wrong addresses. BTB can be made more useful through the concerned Commissioner in each RTO having jurisdiction over his respective area by utilising in-house information supported by external sources.
It is common knowledge that BTB system did not prove effective for broadening the tax base and this system was also being considered for revision by the Tax Reforms Commission. The DRs have been accepting that there were anomalies in the system introduced as BTB. It has also resulted in overlapping, mismanagement, lack of co-ordination, unnecessary expenditure and lack of utilisation of proper information, all of which tantamount to maladministration under the FTO Ordinance. The reasons cannot be visualised as to why FBR does not entrust the concerned Commissioners to obtain and utilise relevant information in accordance with their jurisdiction. Such a system can be of much better advantage and easier for BTB with positive results. FTO further recommended that in order to systematise settlement of sales tax refund claims, the FBR devised a central Expeditious Refund System for prompt payment of genuine claimants through automated procedure. Under this system, filing and processing of refund claims are electronically made through cross matching of invoices by STARR computer system. Despite the queue system, Refund Payment Orders (RPOs) are issued by the concerned RTOs/LTUs usually incurring protracted delay in processing and verification of documents/tax payments. These RPOs are then sent by the RTOs/LTUs to Central Sales Tax Refund Office (CSTRO) in FBR, Islamabad for issuance of refund cheques. The RPOs are listed in a queue and cheques are issued by the CSTRO on their turn in the queue violating, more often than not, the mandatory time limits prescribed by law for sanction of refund claims. Similarly, income tax refunds get delayed due to the process of verification of payments etc.
In some cases due refund is arbitrarily blocked by issuing unlawful orders or cases of preceding years are reopened in violation of law resulting in arbitrary tax demands. At times representations are filed before the President without any lawful/valid justification just to delay the payments. The taxpayers perceive that genuine refunds are blocked due to 'budget target constraints' of RTOs/LTUs. The taxpayers have been suggesting that STROs should be established in each RTO/LTU, which could be monitored at FBR level, so that the taxpayers get their due refund cheques issued expeditiously on issuance of RPOs at the local level. The taxpayers also feel that queue system should be operated within the fore walls of statutory time specifically prescribed in relevant legislations.
The law obliges the concerned Commissioner to issue refund, with due diligence, within prescribed time limit; and the FBR is empowered to take action against any mal-practice or irregularity of the field formations. The severity of the problem gets compounded when the tax authorities violate the statutory time limits for queue based settlement of taxpayers refund claims overshoot the mandatory time limits. It would be desirable to establish CSTRO in the RTOs/LTUs to disburse payments under the queue system based on first-come, first-served basis. The FBR should restrict itself to monitoring of compliance of queue system and observance of the first-come, first-served principle.
The matter was discussed with Members of the FBR. It was claimed that CSTRO has been established in FBR for issuance of sales tax refund in queue at one place on first-cum-first serve basis through a centralised automated system to ensure transparency, justice and fairness in disbursement of refund. Member (Operations), FBR claimed that due to the queue based disposal of refund claims through CSTRO, an amount of Rs 6 to Rs 7 billion was pending and an amount of Rs 3 to Rs 4 billion was being issued each month.
It appears that various methods have been devised to arbitrarily block and delay tax refund. It supports the contention of taxpayers that CSTRO has been established in FBR just to delay and block the genuine amount of refunds for reasons best known to the FBR. The taxpayers feel that FBR, being a policy forum, should not take upon itself to discharge operational functions. As RPOs are issued by the concerned RTO/LTU authorities after due scrutiny of refund claims, there is hardly any justification why FBR should centralise issuance of refund. Explaining the reason for centralising issuing of cheques, Member (Operations), FBR stated that CSTRO issues cheques in terms of queue based on the first-come, first-serve principle and that the staff of field formations could not be entrusted with the job of principle based issuance of cheques. The question, however, is that, if the same staff of field formations has been entrusted with the job of queue based scrutinising of refund claims and issuing Refund Payment Orders (RPOs), why cheque issuing cannot be entrusted to them. In such view of the facts the reason given for centralising cheque issuing at FBR level obviously suffers from rationality deficit. As a matter of principle, FBR should institute a reliable monitoring mechanism to effectively ensure queue based issuance of both RPOs and cheques by the RTOs/LTUs instead of centralising and bottlenecking cheque issuing by CSTRO in the FBR as it is tantamount to role reversal of FBR by confusing policy functions and operational functions which are fraught with adverse implications.
The most serious of implications is that CSTRO of FBR is violating the mandatory time limits prescribed by the relevant legislation for settlement of refund claims as the queue is not subject to the mandatory time limits. The question is, if FBR, which is the apex forum, starts violating express provisions of the law, what would be the message for the tax functionaries in the field. Queue does not give license for violating mandatory time limits for issuing refund and the first-come, first-serve principle does not impart impunity for systemic violation of statutory time limits. The matter, therefore, needs a careful review by the FBR. The law does not allow blocking genuine refunds by centralised automation system under the garb of queue. The queue system without the fore walls of mandatory time limits becomes the bane of refund system. As blockade of refund creates cash flow problems for the manufacturers and exporters who are already working in a constrictive operating environment believed by energy crises, terrorism, bhatta khori and corruption, the FBR needs to urgently review its refund system to find a sustainable solution to remove the irritants. A workable solution would be to evaluate collection performance of RTOs/LTUs on gross collection and resolve the issue of hold-up about Rs 250 billion by issuing interest bearing bonds on one time basis, FTO added.