EDITORIAL: The Auditor General of Pakistan (AGP), which conducted a special audit of refund and duty drawback sanctioned by the Federal Board of Revenue (FBR) and its field formations for 2020, has declared that ‘slack monitoring, absence of post-refund audit, deviation from law, and weak internal controls’ led to very serious issues in payment of refunds from January to December 2020 ‘including excess/double taxation through FBR’s electronic refund payment system’. Furthermore, during the audit activity at the FBR headquarters and its field formations, timely production of relevant record apparently remained an issue throughout the process. The criteria for selection of refund claims for payment, for example, was not produced at all while the rest of the data was not in the right format that would facilitate the AGP’s audit and analysis. It was also noted that FBR’s production of record at the field formation level was simply unsatisfactory. What is more, most of the record was produced right at the end of the field audit activity. And these ‘limiting factors’ no doubt posed a very big challenge for both the audit and formulating opinion on the refund and rebate claim processing.
It goes without saying, of course, that all this led to a number of problems; however, none of them was entirely unforeseen. According to reports, a sample of 8,819 out of 97,222 cases, or 9.07 percent of total population, was selected for Inland Revenue and 28,550 cases out of 339,547 were selected for duty drawbacks of customs, which constituted about 8.41 percent of the total population. Yet FBR field formations provided record for only 1,768 out of 8,819 cases of Inland Revenue, which means that the requisite record for the remaining 7,051 cases was simply not provided for the audit. And in the absence of such crucial data it is no surprise at all that the AGP was simply not in a position to determine whether all standard procedures were observed or not. However, based on what it did see the audit found that refunds and rebates were not processed in a timely manner in many cases and, quietly surprisingly, there was no monitoring mechanism at all to rectify the situation. And the fact that issues such as excess and double payment through electronic refund system were also recorded goes to show how under-prepared the whole system is for such exercises.
The list goes on and it seems there is no end to the inefficiencies and unprofessional behaviour uncovered by the audit. It was also observed, for example, that the post-refund audit cells in field offices were not functional and, to make matters even worse, refund files were kept unattended. And it is hardly a startling revelation that in the absence of this audit, assurances regarding the authenticity of refunds paid could not be properly ascertained. This could, and should, have serious consequences since the Income Tax Ordinance 2001 mandates FBR to check the validity of refunds before they are sanctioned. However, in as many as 783 cases under 15 field formations of FBR, refund was sanctioned without checking the admissibility of allowable tax credit and deductible expenses, valid assessment order, calculation of tax at proper rate, or adjustment of the refund of the previous year. It says quite a lot that this led to inadmissible sanction of refund worth Rs 12,326.77 million during the last year.
It was also revealed that the IT system failed to check double payment of refund while internal controls were also very weak. These are very important issues which will need some very serious looking into; and very urgently at that. The process of FBR overhaul has clearly been delayed for far too long and all the time more things that are wrong with it keep coming out. The government must give this issue its most serious, and undivided, attention.
Copyright Business Recorder, 2021