Officers suspended for valid refunds

Shahbaz Rana Shahbaz Rana | 09-06 08:25

ISLAMABAD:

The federal government has suspended two tax officers for processing what appears to be a legitimate multi-billion-rupee tax refund, despite explicit instructions from the finance minister to release it. The refund aimed to remove obstacles to an $80 million Saudi investment in a Pakistani company.

This development comes alongside a controversial decision by the government to delay the release of Rs23 billion in matured refunds owed to exporters. The delay follows a significant tax shortfall, in direct violation of Prime Minister Shehbaz Sharif's promise to timely pay the refunds.

The Federal Board of Revenue (FBR) suspended a commissioner and a deputy commissioner for issuing a Rs2 billion refund to Gas & Oil Pakistan Ltd (GO), a fuel pump and retail store operator. According to two FBR notifications, the officers were suspended for 120 days or until further notice, following a report from the Directorate General of Intelligence & Investigation alleging the refund was illegal.

Sources revealed that the officers had processed the refund under the direct orders of Finance Minister Muhammad Aurangzeb. The minister's directive sought to resolve a bottleneck in the conclusion of an $80 million acquisition deal, in which Aramco, one of the world's leading energy and chemicals companies, acquired a 40% equity stake in Gas & Oil Pakistan Ltd.

Two senior FBR officers confirmed to The Express Tribune that these instructions originated from the finance minister and argued that no illegality was involved, as the company's refunds had been overdue for several months. The Rs2 billion refund was recorded as a receivable in GO's balance sheet, and the foreign investor required the issue to be resolved. The refunds were processed in May under FBR headquarters' instructions and were finally paid two months ago.

Due to the urgency, the FBR office opened on May 28th—a national holiday—to clear the refund. The FBR's Intelligence and Investigation Directorate later objected to the refund's issuance on a holiday and to the processing of the amount for goods declared in October 2023, sources said. Senior officers familiar with the case stated that rules allowed refunds to be claimed up to six months after the goods declaration.

FBR slows down refunds

After facing a staggering revenue shortfall of Rs98 billion during the first two months of this fiscal year, the FBR has slowed down the release of overdue sales tax refunds to taxpayers. Despite collecting Rs1.456 trillion in taxes—after taking significant advances and imposing Rs1.8 trillion in taxes—the FBR now faces the daunting task of raising nearly Rs1.2 trillion in September to meet the IMF's quarterly target.

FBR sources indicated that achieving the quarterly target seemed impossible without extraordinary measures. A strategy has been implemented to minimise the shortfall by delaying refunds and taking additional advances. On Monday, the FBR was supposed to issue Rs23 billion worth of refund orders but decided to delay them, also holding back the release advice to the State Bank of Pakistan.

Sources mentioned that the plan was to release only Rs10 to Rs12 billion refunds in small amounts. In August, the FBR had issued Rs53.3 billion in refunds, with expectations that this figure would be higher in September. However, the finance minister's recent assurances of timely refund releases contradict the FBR's actions, as no refund orders were issued, breaking from routine practice.

Sensing the FBR's tactics, four Pakistani exporter associations publicly reminded Prime Minister Shehbaz Sharif of his promise to clear exporters' refunds within 72 hours. The government had imposed a 29% income tax on exporters, with the prime minister personally assuring timely refunds. Yet, faced with its first significant revenue setback this fiscal year, the FBR has deviated from the prime minister's commitments.

When contacted, FBR spokesperson Muhammad Bakhtiar denied that any decision had been made to block refunds, stating that they would be cleared in due course.

Meanwhile, Minister of State for Revenue Ali Pervaiz Malik instructed the FBR to resolve Rs138 billion in deferred refund cases from previous years, affecting both exporters and local industrialists. Malik also urged the FBR to broaden the definition of export-oriented sectors beyond the current five and ensure that all exporters' refunds are processed through the Fully Automated Sales Tax e-Refund (FASTER) system.

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