GST refund obligations: the AGP asks the FBR why the “RSCL” is not operational

ISLAMABAD: The Auditor General of Pakistan (AGP) has asked the Federal Board of Revenue (FBR) to explain why the FBR Refund Settlement Company Limited (RSCL) has not been made operational for the issuance of tax bonds sales to the tune of billions for the exporters.

The AGP has raised the question of the whereabouts of FBR Refund Settlement Company Limited as part of the new audit report for 2021-22.

Under the FBR Guidelines for Sales Tax Refund Bonds issued in 2019, bonds to be issued by FBR Refund Settlement Company Limited (the Company) in the central depository system (book entry form) against refund payment orders issued to claimants under Section 67A of the Sales Tax Act 1990. Bonds will be issued in multiples of one hundred thousand rupees.

The bonds so issued yield a simple profit of 10% per annum payable at the end of the maturity period, i.e. against a bond of Rs100,000, Rs130,000 will be paid after maturity to the bondholders. ‘obligation. Bonds are freely transferable within CDS. Bondholders can sell/transfer the Bonds to another person/bank/entity for any consideration or without any consideration (simply as a gift). No payments will be recorded/processed in the CDS. The bonds constitute an approved guarantee for the calculation of the legal liquidity reserve (SLR).

FY22 IT reimbursement payments fall 40.6% to 54.22 billion year-on-year

The AGP report stated that Section 171A of the Income Tax Order 2001 provides that refunds of income tax payable may also be paid by way of refund bonds income tax issued by FBR Refund Settlement Company Limited (RSCL), in book-entry form through an institution. authorized by the Securities and Exchange Commission of Pakistan in lieu of payment to be made by issue of checks or bank debit advice.

AGP observed that an additional grant of Rs 100,000 million was secured in the 2019-2020 financial year and Rs 40,000 million in the 2020-21 financial year with the title “1B0799- Collection of sales tax and income tax refund obligations”. However, it has been observed that the aforementioned bonds were never issued to the taxpayers. Instead of issuing bonds, the outstanding redemption obligation was discharged by payment of cash during said fiscal years, which constituted a violation of the above law.

Unauthorized refunds had financial repercussions. The additional grant has not been used for the purpose for which it was obtained from Parliament. Refunds were paid in cash as normal refunds using a new account manager instead of the refund codes specified/assigned by PMA under Section 170 of the Constitution. This resulted in over-reporting of tax collection and over-payment of shares to the provinces from the dividable pool, which resulted in an additional burden on the federal treasury pool during the relevant accounting period, which resulted in an additional burden on the federal treasury.

The default was reported to the department from August to November 2021. The department reported that a reimbursement of Rs. reconciled the receipts of the said year with the office of the AGPR, in Islamabad. Refunds of Rs 40 billion had been issued in the financial year 2020-21 through TSG and the DR&S had already signed the reconciliation statement for the said year with AGPR office, Islamabad in n’ not excluding the amount of 40 billion rupees of the overall revenue of the FBR.

AGP supported management’s response on the grounds that the refund should be paid from the collection of gross tax for the year under the relevant law instead of an additional grant obtained specifically for the purpose of issuance of refund. This resulted in an over-reporting of tax collection and a decrease in the payment of shares to the provinces from the divisible pool during. Additionally, the objective of issuing redemption bonds was defeated, causing an immediate burden on the federal treasury.

During its meeting, the DAC observed that a substantial amount had been granted to the FBR for the establishment of a reimbursement settlement company, but that no progress in this regard had been made by the FBR until the 2020-21 financial year. The Finance Division representative also concurred with the Audit’s view that no refund settlement company was established and refunds were not issued through bonds. The DAC further observed that this was an operational and political level issue and it was agreed that the issue could be addressed with the relevant RBF wings through the RBF Membership Accounts.

The AGP recommended that the position could be clarified under the advice of the AGP as the said company could not be established, resulting in the non-issuance of a refund through bonds.

It also resulted in over-reporting of tax collection, less payment of the share to smaller provinces from the divisible pool, and hurt the liquidity of the federal treasury. This discrepancy can be regularized by obtaining an authorization from the Ministry of Finance and this practice can be discouraged in the future.

Copyright Business Recorder, 2022

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