The Auditor General of Pakistan (AGP) has expressed serious concern over the issuance of huge amount of sales tax refunds without verification under Federal Board of Revenue's Expeditious Refund System (ERS) by the Centralized Sales Tax Refund Office (CSTRO).
According to the special audit report on Centralized Sales Tax Refund Office (CSTRO) for 2018-19 issued by the AGP, during special audit of CSTRO, FBR, it was observed that sales tax refunds in huge quantities were processed and sanctioned through the ERS without checking/verification of compliance with the said provision of law, which is a legal requirement. After discussion with the management and studying the admissibility parameters built in the system, auditors had the considered view that there are no checks and controls placed in the system to stop or defer the refund against the input tax paid on the goods and services used for any purpose taxable supplies made.
Similarly, there are no checks/controls available in the system to stop or defer the refund against the input tax paid on buildings and construction materials, paints, furnishing and office equipment, etc. The lapse eventually resulted into questionable sanctioning of refund claims due to non-verifications of compliance with the said provisions of law while processing of refund claims through the ERS.
The AGP has strongly recommended that the Refund Rules may be amended by inserting a new rule to conduct post refund audit of each claim sanctioned through the ERS.
During special audit of CSTRO, FBR, it was observed that the then chief CSTRO issued sales tax refunds in huge quantities to various refund claimants through the ERS during 2016-17. After introduction of CSTRO by the FBR, only a few cases of sanctioned refund were being selected by the FBR on risk-based selection through computerized post refund scrutiny for conducting post refund audit.
The AGP has the considered opinion that post refund audit is a legal requirement for each refund claim so that the detailed verification is carried out of all input tax payments against which refund has been issued to the selection and a large number of claims sanctioned through system escape the process of verification as provided in the law and refund cases should be deemed to have processed and paid without conforming/adhering/following the controls prescribed in rues and law in an environment with higher risk of malfeasance.