Draft sales tax refund rules

The draft Sales Tax Rules 2004 has been prepared and proposed to replace, by 15 January 2004, the existing Sales Tax Refund Rules 2002 with the basic objectives (1) to mitigate risk by stopping leakages of massive revenue through millions of rupees in illegal refund claims on fake invoices (2) to expedite the clean cases of refund claim and (3) to make rules taxpayer and tax collector friendly, upholding their integrity.
I am afraid that the new Rules will not prove to be workable, and will not achieve the above objectives and produce the expected results due to the following reasons.
Although the new rules has proposed a rationale change in (i) Rule No. 7 of existing Rules 2002 by allowing the whole amount of admissible refund on inputs, used or to be used in making zero-rated supplies, to be sanctioned in case of a manufacturer-cum-exporter instead of going through the hectic and cumbersome process under Rule 7 (2) of the existing Rule 2002 and (ii) Rule 5 (2) by eliminating the involvement of a senior auditor or superintendent, who used to give his conclusive recommendations on the refund examination report, in-between the processing officer and Officer in Charge:
1. The introduction of Green, Yellow and Red channel categories in addition to the existing profile of exporters categorised as Computerised, Gold, Silver and Others will be treated as duplication, taxpayers will lose faith in the Tax Authority and such a process will result in further delay of the claiming of refund.
2. It is not practically possible to maintain the profile of exporters in the STARR refund automation programme in an up to date, complete and active status due to the attitude, nature, culture, and competence of the people in the government departments taxpayers as a result have to face a lot of problems and wastage of time in proving that the yellow and red categories, determined by as a result STARR, are not correct.
3. The development of profiles of the refund claimants in the STARR refund automation programme would lead to duplication of work because extensive supportive documents would also have to be examined by the processing officer. The feeding of these documents in the programme would hence be a futile exercise which would cause delay in the refund process.
4. The elimination of the concessional time frame for the processing of refund claims for different categories may cause concern to genuine and bona fide taxpayers.
5. Refund claim of investors and refund under section 66 of the Sales Tax Act 1990 needs to be elaborated properly in the new Rules, 2004.
6. The new Rules 2004 are silent on the issue of fake invoices and the procedures to be adopted to unearth fake invoices in the shortest possible time.
RECOMMENDATIONS: In order to achieve the above cited objectives and to process the refund claim effectively, we need to bring the following changes in the draft Sales tax Rules 2004:
1. The following Rule No 1,2,3,4,9,10,11,13,14 and 15 with or without modification, if any, need to be taken in the new Rules 2004:
Rule 1: Short title, application and commencement
Rule 2: Definitions
Rule 3: Establishment of refund Division
Rule 4: Filing of Refund Claim
Rule 9: Supportive documents
Rule 10: Refund Claim of an investor
Rule 11: Refunds under Section 66
Rule 13: Miscellaneous
Rule 14: Saving
Rule 15: Repeal
2. The concept of Green, Yellow and Red channel categories to replace the existing profile of exporters categorised as Computerised, Gold, Silver and Others, as mentioned in Rule 12 of the Rules 2002, should be processed through the STARR refund automation programme. Parameters for each category of Green, Yellow and Red, approved by the Board, should be fed in.
3. The Claimant should be asked to submit the refund claim on computer media and in such language, programme arrangement and data format as is compatible with those of the Sales tax Collectorate accompanied by (i) supportive documents and (ii) a prescribed certificate, duly signed by the person authorised to sign such statement. The audit and Refund division of the Collectorate should unload this package in their computer package, which should assign a unique claim number. It should be equipped with an automatic audit test for verification. This procedure will process refund claim professionally, efficiently.
4. Every person collecting sales tax shall, at the time of collection of the sales tax, furnish to the person, from whom the sales tax has been collected, a certificate prescribed by the Board. The person claiming refund should also furnish this certificate along with a sales tax invoice to qualify for input adjustment.
5. In the case of a refund claim assigned to the Green channel, the processing officer should complete his examination to prove the genuineness and admissibility of the refundable amount, on the basis of computer findings and supportive documents which includes sales tax collection certificate of suppliers, immediately, within a maximum of five days from the date of getting the computer findings.
6. In case of one to two discrepancies are found during the aforementioned scrutiny, the officer in charge shall transfer the claimant to the Yellow Channel under intimation to the claimant and no refund claim of such a claimant shall be assigned to the Green Channel till the discrepancy is removed. However the re-examination process should not take more than seven days from the date transferred from the Green Channel just for want of input tax verification where the original tax invoice, along with a certificate from supplier have been furnished by the claimant, which can be relied upon. Because under Rule No. 13 of Rules 2002, all refund claims shall invariably be audited on a quarterly basis, subsequent to payment.
7. Where the Officer in-charge is of the opinion that further inquiry or audit is required to establish the admissibility of the claim, he may transfer the claim to the Red Channel after approval from the Additional Collector and under intimation to the claimant. Under the Red channel, pre-refund audit is necessary to verify stocks for verification of claim by the senior audit or superintendent. However the re-examination process should not take more than ten days from the date transferred from the Yellow Channel and in case of delay a refund of claim may be sanctioned and paid if a guarantee from a first class bank is submitted by the claimant.
8. Refund claims of a claimant found involved in tax fraud as defined in Section 2(37) of the Sales tax Act 1990 or/and is found to have issued fake invoices or in case the original the tax invoice and/or tax collection certificate issued by supplier is found fake after payment made under Yellow Channel, then the claimant and/or supplier will be liable to pay back amount of tax evaded in question along with additional tax and penalty. He shall be punishable with imprisonment for a term which may extend to five years under section 37A of the sales tax Act 1990.
It is rightly said that had some businessmen not claimed undue and fraudulent refund on fake invoices, the government would not have made stringent rules. It is the global law of the land that innocent people always have to suffer at the cost of acts of fraudulent people. Why has the government shown helplessness in the hand of fraudulent people instead of giving them exemplary punishment for their acts?
Instead they have made the relevant laws more difficult and feel no guilt in penalising innocent people as a result. From these protections, rich illegal businessmen become richer and poor legal businessmen becoming poorer.
Time has changed, under the WTO regime even the legislatures, as well as the laws and regulations of 134 countries, including the Islamic Republic of Pakistan may be questioned and challenged. The country whose laws are termed unjustifiable and unrealistic would have to pay the price by changing their relevant defective laws or pay compensation to the victim or face trade sanctions from rest of the WTO member countries. So would the businessmen of these 134 countries.