FBR orders to block refunds of registered taxpayers

KARACHI: The Federal Board of Revenue (FBR) has directed field formation to block refunds of registered persons on physical verification after declaration of premises not existing or having insufficient manufacturing facilities, official sources said.


The FBR on Thursday issued Sales Tax General Order (STGO) procedure for action to stop refunds of registered persons under Section 21 (4) of the Sales Tax Act, 1990, which was introduced through the Finance Act, 2013.


The order said that on physical verification or visit, the registered person is found not to exist at the declared address, or it is found that no genuine taxable activity is taking place at the premises, or there are insufficient facilities for conducting the quantum of taxable activities, which are declared in the sales tax returns.


The FBR officials said that the provision about taking action against fake invoices and claiming refunds has been introduced after registration of several incidences with the local tax departments regarding claiming refunds on fake input invoices.


Recently, the FBR had initiated investigation against the official involved in issuing certificates to persons who have manufacturing facilities but later found fake and fraudulently claiming refunds.


Early this year, Pakistan Customs has sent a list of fraudulent activities and expressed dissatisfaction over the procedure of issuing certificates by the Inland Revenue officers.


The Section 21 (4) introduced through the Finance Act, 2013 reads: “ … where the board, the concerned commissioner or any officer authorized by the board in this behalf has reasons to believe that a registered person is engaged in issuing fake or flying invoices, claiming fraudulent input tax or refunds, does not physically exist or conduct actual business, or is committing any other fraudulent activity, the board / commissioner / authorized officer may after recording reasons in writing, block the refunds or input tax adjustments of such person and direct the concerned commissioner having jurisdiction for further investigation and appropriate legal action.”


In the latest STGO, the board directed the officials to enforce Section 21 (4) of the Sales Tax Act only when taxable activity was being declared unreasonably commensurate with the capital investment declared, the manufacturing facilities, or the size and nature of the business.


The FBR also directed to hold refunds of registered persons that were claimed against sales tax invoices issued by blocked, suspended or blacklisted persons.


Sources in the FBR said that the procedure was issued after the revenue body received reservations from trade bodies against the blocking of refunds of taxpayers.


In a recent meeting with the finance minister, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) had protested induction of the provision, saying that the Section 21 (4) allowed discretionary powers for blocking refunds and input tax adjustment by tax commissioners and other authorised officers.


The FPCCI proposed that after recording reasons in writing and completion of due course of law, the FBR or the commissioner may block the refunds or input tax adjustment of such a person.

Shahnawaz Akhter
Friday, August 23, 2013

Source: THE NEWS