ISLAMABAD: The Federal Board of Revenue (FBR) has put on hold the payment of around Rs102.282 billion sales tax refunds of exporters and domestic suppliers since 2013, while total pending cases have risen to 68,249 in the same time period, according to a senior tax official.

The amount was withheld to inflate revenue figures in the tenure of the PML-N government, with the net result of drastically squeezing cash flows of the exporters especially of textile and clothing sectors. The new government has promised to revive exports, but key textile exporters contend that a revival cannot happen without significantly reducing the amount of pending sales tax refunds.

“We still have not met with the new ministers of finance and commerce since they sworn in” says Zubair Motiwala, a leader in the textile exporter community of Karachi. “These pending refunds are a liquidity crisis for the industry: without addressing these, and a concurrent reduction in the cost of doing business, there is no way to revive exports” he says.

The matter acquired some political significance when former Prime Minister Nawaz Sharif ordered his then Finance Minister Ishaq Dar to release a large amount of sales tax refunds when he began his march from Islamabad back to Lahore, following the Panama verdict. The move was widely seen as an attempt to purchase political loyalty at a crucial juncture.

Exports have declined since 2013 but recent months have seen a nascent revival. Among other measures, the PTI has promised to put in place “a mechanism for faster refunds on income and sales tax” in its manifesto to help revitalise exports.

Official figures show that the total number of sales tax refunds filed with the FBR stood at 102,900 from 2013-14 to 2018-19, over a period of five years. Of these, only 34,651 or 37.7 per cent of the pending sales tax refunds were cleared.

Yearly break up showed that an amount of Rs8.215bn was stuck in 9,631 claims pending since 2013-14, Rs12.24bn for 2014-15and Rs18.34bn in 2015-16.

The pending sales tax amount reached Rs22.979bn in 2016-17 in total pending cases of 12,851 and Rs36.9bn in 14,113 cases in 2017-18, respectively. The statistics show that the previous government withheld the exporters’ refunds to show figures closers to the revenue collection targets for the respective years.

Even in the first two months of the current fiscal year, the pendency of sales tax refunds cases pile up to 1,363 involving an amount of Rs3.608bn. The FBR has cleared only 262 sales tax refunds in July-August 2018 period. The amount involved was not disclosed.

Published in Dawn, September 6th, 2018