ISLAMABAD: The government has decided to adjust Rs21.4 billion in refund payments to exporters against the recently ended fiscal year, which independent experts say is in violation of accounting standards.
The government Tuesday started the process of settling about 6,332 tax refund cases amounting to Rs21.44 billion. Prime Minister Nawaz Sharif handed over cheques to a couple of dozen select exporters. The amount is just 6.3% of the total outstanding refund and rebate claims of about Rs340 billion.
While the refund amount is a start to clearing outstanding dues, the Rs21.44 billion is not enough to resolve liquidity problems of exporters. Moody’s – a global credit rating service – reported Thursday that the decline in textile exports is a credit negative for Pakistan’s banks because it will threaten their asset quality and comes from a sector that is already burdened with a high stock of problematic debt.
The textile sector is a key contributor to the Pakistani economy, accounting for around 9% of GDP and more than 50% of total exports, and employing more than 40% of the workforce, according to All Pakistan Textile Mills Association (APTMA).
However, the cheques government gave to exporters this week bear the June 30, 2016 date, which is the last day of fiscal year 2015-16. To bail out the government, the State Bank of Pakistan on Wednesday issued a circular, directing the banks to accept these cheques.
The SBP’s circular No 27 of 2016 states that “the FBR has requested banks to accept and honour the sales tax refund cheques bearing value date of 30th June 2016 and printed with validity period of three months up to 30th September 2016.
The tax and legal experts term the government’s action “unprofessional and highly deceptive”. They have also criticised the SBP.
The accounting standards do not allow adjusting refunds against the previous fiscal year, which has been closed, said Dr Ikram ul Haq, a leading tax expert of the country. He said that it was a “farce” act, which would give wrong signals about the intentions and performance of the government.
Dr Haq said that if the government has accepted the principle of payables then it should settle all the outstanding refunds of Rs340 billion against the previous fiscal year.
The sources said that some senior bureaucrats of the Finance Ministry were also against the decision of adjusting the refunds against a closed fiscal year. However, a Finance Ministry official said that rules allow settling the amounts against the previous fiscal year.
The government decided to adjust the refunds against the last fiscal year after it collected Rs3.130 trillion tax revenues on back of taking advances and blocking genuine refunds. The amount was far higher than Rs3.104 trillion tax target.
The FBR first announced that it collected Rs3.112 trillion in taxes during the last fiscal year. Then an August 9th hand-out of the FBR states, “FBR collected more than Rs3,130 billion in the tax year 2015-16 as per figures consolidated and reconciled by Accountant General of Pakistan Revenue”.
The ‘over performance’ in tax collection due to massive blockade of refunds, provided fiscal space to the government to adjust these claims against the previous fiscal year.
In 2011, the then governor of SBP, Shahid Karkar, had blocked an official move to adjust Rs44 billion advances against the previous fiscal year that had closed just four days back.
“It is the purview of the FBR,” said SBP’s Chief Spokesman Abid Qamar, when requested to comment why refunds were allowed to be adjusted against a closed fiscal year.
The FBR and Finance Ministry’s spokespersons promised to give a reply on the reasons for adjusting refunds against the last fiscal year. However, they did not respond till the filing of the story.
For the last several years, successive governments have been blocking taxpayers’ refunds to inflate revenues