THE Federal Board of Revenue electronically transferred a record Rs21.37bn in a single day to clear taxpayers’ outstanding demands for sales tax refunds.

But how have the tax authorities become so efficient? There is a catch, a positive and legitimate one. It is under the new Sales Tax Real time Invoice Verification (STRIVe) system that the huge sum has been refunded en massse. It will help verify whether the sales tax returns, filed by the seller and purchaser, were commensurate with the refund demanded and received.

A dedicated team of tax officials, led by the FBR’s Member Inland Revenue (operations), Dr Muhammad Irshad, developed the software to identify genuine taxpayers from fraudsters in the event of sales tax refunds. The new system has been in place since July. Even after the first bulk payment, sales tax claims worth an estimated Rs91bn have yet to be settled.

The new system promises to save time by minimising interaction between tax officials and taxpayers, thereby ushering in a more seamless refund regime

The FBR data shows that the beneficiaries of the first payment were 887 taxpayers. Compared to cases of higher refunds of over a million, the lowest refund made through the new system was of Rs66.

Under the new system, all registered suppliers will first submit their sales invoice data into the STRIVe software along with their monthly tax return. The registered purchasers will apply through the same system to claim input tax refund. The new system will verify all these tax claims electronically.

As part of the new regime, 67pc of registered persons will receive a confirmation of their due refunds within 24 hours, through email or SMS. Only 1pc of registered individuals still visit regional tax offices and file refund claims manually.

The previous refund system required physical verification therefore taxpayers had to file claims in person.

The new system promises to save time by minimising interaction between tax officials and taxpayers, thereby ushering in a more seamless refund regime

Registered persons are required to submit their monthly sales information on the 10th day of the each month, or around four to five days before the filing of their monthly sales tax statement. According to the FBR, no claims for input adjustment or refunds would be entertained in cases where the authorities had not received tax payments.

A chartered accountant and former member of the Tax Reforms Commission, Ashfaq Tola, said the commission had recommended that the FBR automate the whole process. He said the new refund system was a good one, but it needed to be implemented effectively. He also hoped that to a great extent, it would help in removing bogus claims for refunds..

The web-based system will allow taxpayers to file refund claims using the same login information they use to submit their sales tax returns Refund Payment Orders (RPO) will be delivered to taxpayers and the Centralised Sales Tax Refund Office (CSTRO) subsequently.

The RPO will appear in the system in a queue and the CSTRO office, which is based in the FBR headquarters in Islamabad, will prepare a statement of payment advice for all RPOs. The same will be sent to the State Bank of Pakistan (SBP).

The CSTRO will electronically transfer the details of the approved payment orders to the SBP for direct credit to the claimant’s declared bank account; and intimation of such will also be given to the claimant. The central bank will then disburse the amount to the claimant’s scheduled bank. For example, in the first bulk payment the amount was transferred into clamant’s accounts in 28 scheduled banks.

The Pakistan Apparel Forum’s Chairman Jawed Bilwani confirmed that his members have received their due refunds for which RPOs were already issued. In August, the government also released Rs22bn to exporters to clear their outstanding refunds.

The government has already zero-rated — no tax no refund — five sectors: textile, leather, sports, surgical goods and carpets. Mr Bilwani still hopes the government will consider the payment of refunds on packaging materials.

Commenting on the negative side of the software, Mr Bilwani said no buyer shall be able to avail input tax credit if the supplier fails to either declare relevant supplies or make payment of due tax and file returns. He said the buyer will then have to wait for the supplier to file returns, resulting in a delay.

A tax official, privy to these developments, said the new regime will induce both, buyers and sellers, to comply. As per law, the supplier will have to deposit both the sales invoice and returns the same month, while a buyer has a maximum period of six months.

Any supplier who does not file their sales invoice and returns the same month will be declared a non-filer. In case of non-filing in the second month, the supplier will be placed in a non-active taxpayers list (ATL). A consecutive non-ATL supplier will attract higher tariffs along with an automated penalty.

Tax officials believe the system has already started giving dividends. An example is the case of Faisalabad, Lahore and Gujranwala electric companies which deposited only Rs200m a month before the new system, now pay sales tax of around Rs1bn.

Also under the new system, a purchaser can mention details of supplies from unregistered persons in their returns but cannot claim an input tax adjustment against these supplies.

Published in Dawn, Business & Finance weekly, December 5th, 2016