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New Sales Tax Refund Rules to Expedite Payment

ISLAMABAD (May 29 2006): New sales tax refund rules would be introduced in the coming budget to minimise delay in payment of refunds to the exporters. The Central Board of Revenue (CBR) may also set up a 'centralised refund office' at Islamabad in the wake of successful experience regarding 'centralised registration office'.

Sources told Business Recorder on Sunday that the Board would finalise the new rules after incorporating the viewpoint of the collectors of sales tax in a meeting to be convened on Monday, May 29.

Tax experts said that the Board was examining a proposal to make it mandatory for the refund claimants to deposit security in the form of 'bank guarantee' etc. The security would not be released till verification of invoices and other documents is completed.

The idea has been taken from the Value Added Tax (VAT) Act, 1994 of the United Kingdom. In UK, the tax officials are empowered to demand security in refund cases where documents' verification is needed. The existing refund rules do not authorise the collector to demand security from the refund claimants, experts said.

They said that the government might take some harsh anti-tax evasion measures against delinquent taxpayers in the next budget. The idea is to discourage fraudulent refund claimants. In case the CBR agrees with the proposal, it would be one of the major budgetary decisions on the sales tax side.

Tax experts said it was generally noticed that unnecessary delays in processing/sanctioning of sales tax refund was a matter of routine and the registered persons often complain of corruption on the part of sales tax officials sanctioning refunds.

It is proposed that the concerned sales tax official should be assigned to process every refund application within a specified period from the date of receipt of refund application. This should also cover unadjusted refund against an 'adjustment note'.

Meanwhile, sources said that the collectors' meeting would also discuss the number of persons brought into the tax net on the basis of utility bills data provided to the collectors.

They said that procedural amendments would be introduced in the new rules to further simplify the laid down procedure. Presently, certain provisions of the refund rules are creating problems for the business community, which need to be removed.

Secondly, the role of Sales Tax Automated Refund Repository computer system' (Starr) for payment of refunds to exporters would also be discussed in the budget meeting.

The CBR data shows that 78 per cent of major sales tax refund claims related to the textile sector, electricity, vehicles including tractors, plastic products and leather items during 2005-06. The Board is analysing data to ascertain reasons behind huge refund payment to these five sectors, sources added.

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