A number of technical and operational problems have been observed by exporters whose refund claims are hit by the system glitches of the Federal Board of Revenue (FBR).
A prominent Karachi-based sales tax expert said here on Wednesday that exporters are seriously hit by the operational problem in electronic settlement of sales tax refunds. The government in the Finance Act 2019 has abolished the zero-rated regime and slapped the standard rate of sales tax on the entire supply chain to tap potential revenue on local consumption of textile goods.
The government in order to protect cash flow problem of the exporters assured for timely payment of their refund claims within 72 hours without human interaction through electronic processing system called "FASTER".
The system, according to the updated feedback of the exporters to their export association, is not yet fully capable to process the claims smoothly in a hassle-free and accurate manner, though the FBR's team is trying its best to make it a successful model. The reported problems are apparently beyond its insight. The large numbers of recent legal and procedural changes are also some of the reasons for the problem. The FBR team could not foresee the implications of the system while processing the claim electronically, which even resulted in the rejection of refund claims without any fault at the part of the exporters.
The expert informed that first and foremost problem was the transfer of carrying forward amounts prior to the zero-rated regime into the post-zero-rated regime. The system acknowledges and accepts only carry forward amount that appears in last month's RPO, ie, Jun 2019. The carry forward appearing in sales tax return of June 2019 or amount of carrying forward appears in RMS were not given effect. It is important to note that some of the refunds claims were manually processed by the RTO subsequent to system rejection. Hence, in his opinion, at least the amount of available carried forward amount duly verified in RMS shall be given proper brought forward effect.
Likewise, a number of exporters in the first month have opted not to claim a refund and brought forward all their input tax in the next tax period. The system has no option but to process these claims, thus amount opted for carried forward could not be brought forward in the next tax period. The FBR team recently has resolved the problem by opting to process these claims at the minimum amount of Re 1 so that the carried forward amount can be transferred to next month. Though the problem is resolved actually they need to correct the SOP of the system to ensure the transfer of carried forward amount into subsequent month claim in all the cases whether the claim is electronically rejected or no amount is claimed in the given month, the expert proposed.
While highlighting another problem, he informed that due to the omission of zero-rated supplies under SRO 1125, the system requires a minimum payment of 10% under section 8-B in the month of July 2019. The FASTER is not given proper calculation effect to such minimum payment while processing a refund of the same tax period. The board, however, brought an amendment to the relevant SRO providing an exclusion from minimum payment and updated its system. However, those exporters hit by this glitch have still suffering for correct calculation of their refund payment.
The shipping bill data of manufacturing bond is also not yet incorporated in FBR's system which is resulting in stock reconciliation that needs to be filed under annex "H".
The standard risk-based criteria are areas of concerns. The value addition varies from sector to sector and product to product. The export of basic items like greige fabric, dyed fabric, basic towel or knitted fitted sheets has a low margin turnover-based product. The consumption and sales tax component is far higher comparing higher value-added products like fashion garments, apparel, polo shirts, night wears, and other goods. The system apparently applies the same ceiling limit and therefore the exporters of basic or low value-added products are hit by the risk-based criteria.
In his opinion, the FBR team ideally wants to place proper checks and balances to avoid any excessive or illicit refund claims and in this attempt they have placed some checks which are genuinely affecting the exporters. The "FASTER" thus has not yet proved an answer to the withdrawal of zero-rating regime and at large FBR in the coming days needs to pay more focus and time in the timely settlement of refund claims rather than putting its focus on revenue collection.
The expert said that zero-ratings of the major components such as yarn and utilities and introduction of specialized zero-rated regimes based on the input output coefficient origination (IOCO's) determination of input tax consumption are still a more workable option to protect export sectors from unnecessary hassle, besides elimination of corruption and bogus refund claim.
The FBR in the chairmanship of private-sector leadership should focus on adopting progressive and out of box solutions for rapid increase in revenue collection, bringing transparency and improving taxpayers' trust, the tax expert concluded.