KARACHI, Sept 21: Central Board of Revenue Chairman Abdullah Yusuf said on Wednesday that an electronic system was being developed for the verification of invoices, which would not only help make refund payments through bank transfer, but also check ‘fake and flying invoices’.

Speaking to members of the Korangi Association of Trade and Industry (KATI), he said that after allowing zero rating sales tax to five major exporting sectors, the workload had been reduced by 90 per cent.

As a result, the CBR chief said, the remaining 10 per cent of refund work could now be better handled. However, he informed the members that in order to check huge losses towards sales tax refunds, the CBR had to shift from a principled stand accepted the world over of imposing sales tax across the board, including exports.

Giving details about the electronic system, Mr Yusuf said that it would help match invoices and a taxpayer would also be in a position to file his tax return electronically. He pointed out that once a data bank was fully prepared and activated it would also reduce human involvement.

The CBR chairman admitted that due to magnetite of workload with regard to sales tax refunds, the system could not work efficiently and it resulted in more revenue losses than benefiting the national exchequer. “After analysing the problem, the CBR has to shift from the principled method by putting five major industries under the zero rate sales tax.”

Problems were on both sides -– the CBR and exporters -– and only last year Rs55 billion were paid towards refunds. If there was a quantum of work for the CBR offices and staff for sales tax refunds, the exporters were paying some cost for getting refunds. He expressed the hope that five major export sectors would not now be facing cash flow as was previously experienced owing to stuck up of huge amounts towards refunds.

He pointed out that there were some problems as “we all are passing through transition period” and added that some unscrupulous elements tried to get benefit out of the system and submitted a large number of ‘flying invoices’, which resulted in delays in the payment of refunds related to the period prior to the announcement of zero rate in the budget.

Mr Yusuf said that after taking stock of the situation the CBR decided to verify and reconcile the refund claims before making payments and this was resulting in delay. However, he suggested that “we should realize the practical difficulties” and assured that all issues would be resolved amicably at the earliest.

Similarly, the CBR chief said that there was no room for the carry forward system under VAT the world over and it was only in Pakistan where “we have adopted this system because initially sales tax was also imposed on cotton, which is a huge economic activity”. He said it was not possible to confirm or verify carry forward of stocks because only an entry had to be made that might be correct or wrong depending upon the honesty of an individual.

However, he said the CBR was phasing out the carry forward system as it was being badly misused, and the last year the period was reduced to six months and this year to two months, and ultimately it would be phased out totally.

In reply to some of the points raised by KATI Chairman Abdul Haseeb Khan, he said it was not possible for the CBR to resolve the problems of the pharmaceutical industry pertaining to prices or refunds because it was directly related to the ministry of health, but assured that he would still like to help the industry in overcoming such issues.

Former KATI chairman Mian Zahid Husain, who is also chairman of the standing committee on sales tax and customs, raised a number of issues and problems confronting the trading and industry. Most of the issues were related to sales tax.

In reply to a query, Mr Yusuf said that lubricants and oil fell under the jurisdiction of the ministry of petroleum. The CBR could not take decision without recommendations and approval by the ministry.

Referring to another point, Mr Yusuf said that in principle the CBR had agreed to zero rate the utilities for all those five sectors that had been zero rated for sales tax. He said already 650 units had been zero rated for electricity. Similarly, for gas the industry will be zero rated. A notification would soon be issued wherein only utility bills would have to be paid by these industries, he added.

S.M. Munir, former FPCCI president, appreciated the working of the Central Board of Revenue and said that overall friendly environments had been developed and taxpayers now felt conformable to visit tax offices. He said there was a conspicuous change in the mindset of tax officials at the higher level, but it would take some time to see a similar change at the lower level.

He said that refunds were also being paid by the income tax department, which itself was a big change, because in the past one could never think that he would be getting refund without making any efforts.

Mr Munir also appreciated the working of the Alternate Dispute Resolution (ADR) and said it had helped both the taxpayers and the CBR. He assured that if enabling environments were provided the business community would not only ensure prosperity in the country, but would also help meet revenue targets.