Delay in input refund payment: EDB for fixing one month''s time limit

The Engineering Development Board (EDB) has proposed to the Federal Board of Revenue (FBR) to amend the Sales Tax Rules 2006 to check blockage of sales tax refunds of engineering industry, as hassle and harassment is being caused by the tax department during refund processing period.
A report of the EDB on sales tax refunds showed astonishing facts that a normal refund claim on average takes more than six months for payment. "The usual excuse is FBR''s informal advisory on stoppage of issuance of refund payment cheques so that higher revenue collection figures can be shown". The sales tax refund has been delayed due to objections raised by FBR processing system or officer in-charge of the refund division, treasury officers and audit officers.
To tackle such a situation, the EDB has proposed that a maximum time limit of one month may be prescribed in Chapter V of the Sales Tax Rules, 2006 for processing, scrutiny and issuance of cheques in respect of zero rated export refund claims.
Sources told Business Recorder here on Saturday that the EDB has forwarded the sales tax refunds related proposals to FBR for necessary action for clearance of refund claims of the engineering industry. According to the EDB, all goods exported, including products of engineering industry of Pakistan, are charged to sales tax at the rate of zero percent. Such exports are termed as zero rated supplies. The legal cover for zero rating is provided under section 4 of the Sales Tax Act, 1990. The intent of law and the declared policy of the government are very clear. However, the procedures and practices adopted to ensure zero rating on export supplies create problems.
As per the existing procedures, the engineering industry pays sales tax on import or local procurement of input materials needed for the manufacture of export goods. Such payment of sales tax becomes input tax and is to be claimed as such in the next monthly sales tax return for the tax period (month). On making exports zero rated supply an invoice showing the tax charged as zero is shown with zero Output Tax. Since the tax liability turns out to be in the negative, the excess of input tax is carried forward for the next tax period, or is claimed as refund. This is where the problem starts.
Sources said that Chapter V of Sales Tax Rules, 2006 deals with refunds. These rules provide procedure for filing of sales tax refund against exports as well as their processing and scrutiny for payment of refund. The exporters from engineering industry have faced multiple problems in this regard. What happens is that as soon as complete information to support refund claim is filed with refund divisions of Sales Tax Collectorates, Regional Tax Offices or Large Taxpayer Units, a report is to be generated through CREST, a sales tax computer system, which in most of the cases would raise objections. Further, the processing officer or officer-in-charge of refund division also raises queries. He can also opt for inquiries or audits as deemed appropriate to him in terms of Rule 29 of the Sales Tax Rules, 2006. A lot of time is lost in this process and efforts are needed to be put in to satisfy the processing officer.
Once the refund claim is approved and sanctioned, the next block comes in the name of treasury officer in CSTRO who takes his own time as the queue of pending claims is long. The usual excuse is FBR''s informal advisory on stoppage of issuance of refund payment cheques so that higher revenue collection figures can be shown. A normal refund claim on average takes more than six months to be paid, if someone is lucky. If manufacturing time is also added to the refund processing time, the money in the shape of input tax remains blocked with the sales tax department for more than a year. It has to be kept in mind that this precious money comes out of the working capital of exporters on which banks charge anything from 18 percent plus, as mark-up. The blockage of working capital, coupled with hassle and harassment caused in the refund process, has been identified by many exporters from the engineering industry as a barrier against exports, which needs to be removed. The industry is also mindful of the fact that government revenues need to be safeguarded.
Therefore, it has been proposed that a maximum time limit of one month may be prescribed in Chapter V of the Sales Tax Rules, 2006 for processing, scrutiny and issuance of cheques in respect of zero rated export refund claims. Secondly, Rule 29 of the Sales Tax Rules, 2006 may be suitably amended to prescribe that any information required, inquiry made or audit conducted by the processing officer shall be within 30 days prescribed for payment of refund. Thirdly, all scrutinising steps shall be taken in one go and not one after another, the EDB added.