Taxation

FBR examining proposals to clear refund backlog

The Federal Board of Revenue (FBR) is examining different proposals in consultation with State Bank of Pakistan (SBP) for clearance of pending refunds, including issuance of bonds worth Rs 100 billion in a phase-wise manner. Sources said that various proposals are under considerations to clear refund amounts. Consultations with the Ministry of Finance and SBP are under way to finalize the idea of launching bond for clearing this liability.

The government has yet to finalize procedural requirements and details of the procedure in this regard. Ministry of Finance and FBR are expected to hold a meeting anytime soon to finalize modalities to launch this bond aimed at clearing major chunk of refunds of exporters.

One of the proposals under examination is to launch a three-year negotiable security bond of worth Rs 100 billion in different phases through central bank, they added. Sources said the government is chalking out a multi-pronged strategy to clear refunds as one portion of refunds would be issued through bank cheques in cases where RPOs (Refund Payment Orders) were already verified, issued and reconciled.

Another proposal is that the sales tax refund claims and customs duty drawbacks may be paid by State Bank of Pakistan through authorised dealers immediately at the time of realization of export proceeds. The pending refund claims of Rs 200 billion include: (i) sales tax refund claims including deferred claims of around Rs 125-130 billion; (ii) customs duty drawback of around Rs 20 billion; and (iii) income tax refund claims of Rs 50 billion.

When contacted, tax experts said that the government may be required to amend the Federal Treasury Rules of Finance Division to give legal support to bonds issued in lieu of income tax and sales tax refunds. If a bond is issued in the name of a refund claimant, there is a need to specify procedure in the accounting system and treasury rules for encashment of such bonds by other persons. There is no provision in the federal tax laws for trading or encashment of such bonds (in lieu of refunds) in the market. As such kinds of bonds may be issued for exporters community for the first time, the government would chalk out a comprehensive procedure effect amendments in treasury rules, if necessary.

Experts opined that for issuing of any negotiable security bond for clearing backlog of exporters worth billions of rupees in which the government may issue a paper for exporters, the government is also considering effective amendments in the Sales Tax law for insertion of enabling clauses to make this mechanism operational.

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