All sales tax refunds due from July 1, 2019 would be paid from the current revenue stream of the Federal Board of Revenue and the Treasury would not be involved. This was revealed by a high-level source in the FBR to Business Recorder and confirmed by the Ministry of Finance.
The Ministry of Finance will not allocate any sum(s) for payment of sales tax refunds, the source added, because refunds are not an expenditure item; net revenue after the payment of sales tax refunds would be reported to the Ministry of Finance. Effective the week beginning 26 August the FBR would begin the process of repayment of refunds through the Fully Automated Sales Tax e-Refund (FASTER).
Under the new system notified by the FBR, the FBR will issue next batch of sales tax refunds to exporters of five export-oriented sectors by electronically communicating Refund Payment Orders (RPOs) to the State Bank of Pakistan within 72 hours of submission of claim for onward advice to banks for credit into the claimants' bank accounts. According to the FBR, the refund payment order (RPO) of the amount found admissible shall be generated and the same shall be electronically communicated direct to the State Bank of Pakistan, within 72 hours of submission of claim, for onward advice to the respective banks for credit into the notified account of the claimant. In case of refund claim of a commercial exporter, the payment of such refund shall be made after the realisation of export proceeds.
Meanwhile, Towel Manufacturers' Association of Pakistan has overwhelmingly rejected the new refund procedure for five export-oriented sectors under SRO 918(I)/2019.
It has requested the FBR for payment of 17 percent sales tax from separate exporters escrow account.
The association has approached Abdul Hafeez Shaikh, Advisor to Prime Minister on Finance and Revenue, Abdul Razak Dawood, Advisor on Commerce and Textile to Prime Minister, and Chairman FBR Shabbar Zaidi, highlighting pros and cons of the refund mechanism.
The association has requested to consult association before finalising refund mechanism to exporters.
Being an almost 100 percent export-oriented industry, the towel manufacturers foresees severe cash flow crunch for their exporters and predicts decrease in towel exports due to the sales tax refund mechanism outlined in the SRO.
Firstly, the requirement of the complex natured Annexure-H form will create delays for the exporting companies in filling their returns. The association urges the FBR to utilise the Annexure-H for the post audit purpose only and not for the purpose of pre-verification of the refund claim.
Secondly, the association firmly believes if the collected sales tax refunds from the exporters go into the government revenue stream, the government will not be able to return the collected fund to the exporters in a timely manner, thus creating sever liquidity crunch for the exporting industries.
Thirdly, for this reason the current collected sales tax funds from the exporters should be kept in separate escrow account with complete visibility to the exporters and the refunds should be routed timely to the exporters from this escrow account only.
The association urged the FBR to consult with the association in order to devise a suitable refund mechanism which the industry can survive and grow its exports from Pakistan.
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