Stuck-up refunds: FBR fears poor response from taxpayers for promissory notes

The Federal Board of Revenue (FBR) has apprehended a dismal response from taxpayers against the promissory notes to settle their stuck-up Sales tax refunds. According to the official sources, the taxpayers can avoid to avail this option because of the condition that they cannot cash it before the expiry of three years. This condition may discourage taxpayers, they added. However, since they can use it as collateral for obtaining loans from banks or can exchange it with each other in business transactions, therefore, there might some attraction for them.
It is worth noting that there is also a difference of opinion amongst the members of relating industries facing problems in timely clearance of stuck-up sales tax refunds. The government has decided to issue refund bonds (promissory notes) to exporters, on annual profit of 10 percent with a maturity period of three years, for clearance of backlog of Rs 200 billion stuck-up refunds. Huge amount of around Rs 200 billion claimed by taxpayers are stuck in refunds. This causes liquidity crunch for businesses.
These refunds have accumulated over a long time. The Section 67A is proposed to be inserted in the Sales Tax Act, 1990 to provide for issuance of promissory notes to claimants at their option. Meanwhile, tax experts are of the view that the mechanism of promissory notes would defeat the process of scrutiny, as the Board would have to issue promissory note against the whole claim. If the FBR is intending to hold a detailed scrutiny of each claim, it would be far better to pay the claim in cash then issuing a promissory note and incur a financial burden on the exchequer, they stressed.
This concern of tax experts have also been seconded by some official sources, saying that the promissory notes would only be issued against the Refund Payment Orders (RPOs) of stuck-up refunds. Security of the promissory notes would be equal to a currency note and no one would be able to get it printed privately. However, majority of official sources have ruled out the possibility of issuance of fake promissory notes, how fake promissory notes can be issued when issuance of fake refund claims is not possible. No fraudulent refunds are possible after automation of the system, they added.
Tax lawyers are of the view that the government should pay back refunds instead of paying 10 percent interest on stuck-up claims. Any such situation would burden the exchequer further, they believe.
They said the idea of promissory note would be beneficial neither to taxpayer nor the government. It is merely eyewash. They said if the government can dole out funds for revival of PIA or Pakistan Steel Mills etc. then why it cannot clear stuck-up refunds one time full-fledged. Interestingly, they said, the idea of promissory note was not floated by the exporting industry. Instead, the tax bureaucracy has suggested it to the government, which would invite embarrassment for the government at the end of the day.