Islamabad: The Federal Tax Ombudsman (FTO) has ruled that the Federal Board of Revenue’s (FBR) practice of restricting the adjustment of income tax refunds against taxpayers’ liabilities is unlawful and amounts to maladministration.
In a consolidated decision on multiple complaints filed by a stock brokerage firm, the FTO held that internal system limitations imposed through FBR’s IRIS portal—which allow only partial adjustment of refunds despite larger amounts being legally due—have no backing under the Income Tax Ordinance, 2001 and violate taxpayers’ statutory rights.
Case background
The complainant, a brokerage house registered with the Pakistan Stock Exchange, had refundable income tax credits amounting to Rs7.86 million for tax years spanning 2009 to 2024. The firm sought adjustment of these refunds against its admitted tax liability for Tax Year 2025. However, IRIS restricted the adjustment to a nominal amount, compelling the taxpayer to repeatedly pay taxes from its own funds while refunds remained pending.
According to the taxpayer, the FBR helpline confirmed that automatic refund adjustments are capped at Rs100,000, extendable to Rs200,000 in limited cases. The FTO observed that such administrative limits cannot override clear statutory provisions.
FTO’s findings
The Ombudsman noted that refund applications submitted under Section 170 of the Income Tax Ordinance, 2001 were not processed within the mandatory 60-day timeframe. The prolonged withholding of refunds amounted to negligence, inefficiency, and delay, squarely falling within the definition of maladministration under the Federal Tax Ombudsman Ordinance, 2000.
The FTO categorically declared that any internal FBR instruction or system check that restricts lawful refund adjustments is arbitrary, unreasonable, and illegal.
Directions to FBR
The FTO directed the tax authority to:
- Process and adjust all pending refunds for the relevant tax years against the taxpayer’s admitted liability for Tax Year 2025 in accordance with law.
- Remove restrictive system checks in IRIS and develop a mechanism to automatically carry forward genuine refunds for adjustment in subsequent tax years.
Broader impact
Tax professionals say the ruling may have wide-ranging implications, as many taxpayers face delayed or capped refunds due to system constraints. The decision reinforces that administrative convenience cannot supersede statutory rights and could push FBR towards long-overdue reforms in its refund processing framework.
