Simplified rules to ensure prompt payment of sales tax refund

ISLAMABAD (February 28 2004): Federal Finance Minister Shaukat Aziz has said that simplified “Sales Tax Refund Rules 2004” will ensure prompt payment of sales tax refund making procedure less cumbersome for exporters with a clean slate.

The new refund methodology will be announced in Budget 2004-05 after considering the viewpoints of stakeholders like the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), etc.

Accompanied by Central Board of Revenue (CBR) Chairman Riaz Ahmed Malik and CBR Member Sales Tax Shahid Ahmed, the finance minister told newsmen here on Friday that the refund claims would be placed in 'Green', 'Yellow' and 'Red' channels on the basis of risk management so that the exporters with error-free record be issued refund after simple cross matching of the documents.

In the “Yellow Channel”, pre-sanction desk audit would be conducted, while in case of “Red Channel” proper audit and verification of payment would be conducted before sanctioning of refund.

Shaukat said that the new system would be different from the sanctions of refund under Gold, Silver categories as per the existing rules and parameters for the categorisation of exporters as high risk or low risk would be devised in consultation with all the stakeholders.

The claims of 'Green' and 'Yellow' channels would also be subject to post-sanction audit on random-cum-risk assessment basis. Thus, the exporters with good profile would get their sales tax refund swiftly, while others would be subject to scrutiny or audit commensurate with their profiles.

The finance minister said that the new procedure would have the provision of full payment of claim amount replacing the existing system making payment in parts.

Shaukat added most of the verifications, calculations and processing would be completed through the computer system. The existing software called STARR refund automation programme would be enhanced with the introduction of 'STREAMS' (Sales Tax Risk Evaluation and Management System). This would considerably reduce the discretion and interference of tax officials in the refund mechanism.

According to the proposed procedure, exporters falling into Green channel will be promptly issued refund where supportive documents were verified and no discrepancy detected.

In case of any discrepancy, the CBR will transfer the exporter to Yellow channel for carrying out scrutiny to ascertain the admissibility of refund claim.

Red channel will be allocated to exporters only in cases where pre-refund audit is necessary to verify stocks or deposit of tax for verification of claims by a senior auditor. Refund claims of a claimant found involved in tax fraud will also be assigned 'Red' channel.

Under the Sales Tax Refund Rules 2004, the Refund Division would exclusively deal with the receiving, processing and sanctioning of claims. A deputy collector or any other officer as may be nominated by the collector of sales tax will head the Refund Division. The collector may distribute the work of the Refund Division among one or more deputy collectors or senior assistant collectors.

The procedure has specified that the bank-receipted monthly sales tax return filed by a claimant would be treated as his refund claim once all the supportive documents have been received.

The claimant will submit a legible photocopy of the sales tax return accompanied by supportive documents to the refund receipt section of the collectorate.

The claimant would submit the following documents to support his refund claim; input tax invoices, bills of entry and/or Pakistan Goods Declaration; all sales tax invoices, including zero-rated invoices showing taxable supplies made; bills of export (quadruplicate copy) indicating mate receipt number with date, airway bills, railway receipt and/or postal receipts, bearing examination reports recorded by customs officers; bills of lading, airway bills, railway receipts and/or postal receipt indicating transportation of goods out of Pakistan; copies of cheques, pay orders, demand drafts or other banking instruments through which payment has been made to the supplier, a statement showing value, quantity and input tax on stocks in balance and the position of stocks of major inputs (covering at least 90 percent of the total input) and outputs carried over from the previous tax period, addition in such stocks, stocks consumed or supplied during such period and stocks in balance, if any; treasury challan in case of auction sales and in case of commercial exporter or manufacturer-cum-exporter whose exports of same state goods exceeds 20 percent of his total exports.

On receipt of claim, it will be uploaded in STARR, which will assign it a unique claim number, process it automatically on the basis of parameters approved by the board, and assign it to either 'Green', 'Yellow' or 'Red' channel.

In case of a refund claim assigned to the Green channel, the processing officer would only cross-match the supportive documents with the pre-designated electronic format to verify whether the refund claim is properly supported by documents specified in these rules.

The processing officer would then forward the refund claim to the officer in-charge along with a written report in this regard. The officer-in-charge would sanction the admissible amount of refund on the basis of STARR processing and the report of the processing officer, and then forward the refund claim for post-refund audit.

Provided that in case any discrepancy is found during the aforementioned scrutiny or post-refund audit, the officer-in-charge would transfer the claim to the Yellow channel under intimation to the claimant, and no refund claim of such claimant would be assigned to the Green channel till the discrepancy is removed.

In case of a refund claim assigned to the Yellow channel, the processing officer would carryout pre-refund scrutiny to ascertain its admissibility under the law, give his written report thereon and forward it to the officer in-charge. The officer in-charge would recheck the refund claim, sanction the admissible amount of refund on the basis of STARR processing, the report of the processing officer and his own scrutiny, and then forward the refund claim for post-refund audit.

Provided that 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.

In case of a refund claim assigned to the Red channel, comprehensive pre-refund audit would be conducted by an officer not below the rank of senior auditor. Such audit would include verification of stocks in balance and deposit of tax on the goods in respect of which refund of input tax has been claimed.

The tax official may, for reasons to be recorded in writing and after taking permission from the collector, call for any other document or information for the purpose of ascertaining the admissibility of the claim.

The new rules have specified that if, on the basis of STARR processing, report of the processing officer, audit report and scrutiny, the tax officer is fully satisfied about admissibility of the claim, he will sanction the claim and send the original copy of the sanction order to the treasury officer for issuance of a cheque to the claimant.

The duplicate copy of the sanction order would be retained in the Refund Division in the relevant file.

The treasury officer would ensure that the refund cheque is in the form of a crossed cheque to be deposited in the declared bank account of the claimant, and is issued to the claimant only through courier service on claimant's expense, or through urgent mail service with due acknowledgement. No refund cheque would be handed over in person in any case.

The treasury officer would maintain all the records and registers, etc, prescribed under the treasury or financial laws for the purpose of keeping account of payment of federal revenue refunds.

In case of a manufacturer-cum-exporter, the whole amount of admissible refund on inputs used or to be used in making zero-rated supplies would be sanctioned. Whereas, refund to a commercial exporter or to a manufacturer cum-exporter who exports same state goods exceeding 20 percent of his total export, would be sanctioned to the extent of input tax consumed in the goods actually exported.

On the issue of inadmissible refund under new rules, the tax official could issue a notice to the claimant requiring him to answer within 14 days, as to why the refund claim or, as the case may be, part thereof should not be rejected and as to why the claimant should not be proceeded against under the law.

The automated processing of refund claims would be conducted on the basis of designated electronic format and the supportive documents provided by the claimant.

The claimant would be responsible for any misdeclaration or provision of incorrect data or documents, and would be liable for penal action.

As per revised procedure, all refund claims that have not been subjected to pre-sanction audit would invariably be audited subsequent to payment.

If it is found during post-refund audit that any inadmissible amount of refund has been paid, such amount would be recovered along with additional tax and penalty, besides any other penal action that may be taken under the Sales Tax Act.

Moreover, in case any fake invoice or fraudulent document is detected in a refund claim, it would be dealt as a case of tax fraud.

The admissible refund claims received with supportive documents up to the promulgation of these rules would be sanctioned and paid in accordance with the provisions of the Sales Tax Refund Rules 2002.

The refund claims filed by the commercial exporters for exports made up to June 30, 2003, would be sanctioned under the Sales Tax Refund Rules, 2000, after production of Bank Credit Advice (BCA) showing receipt of sales proceeds in foreign exchange from the country to which the goods have been exported.

The refund claims filed by commercial exporters may be sanctioned and paid if a bank guarantee, in the format prescribed by the board, is submitted by the commercial exporters in lieu of Bank Credit Advice (BCA) for refund claims filed till June 30, 2003.

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