ISLAMABAD: The Federal Tax Ombudsman (FTO) has ordered the Federal Board of Revenue (FBR) to ensure that income tax recovery proceedings are not initiated before taxpayers’ pending refund claims are settled or adjusted.
In a major ruling, the Ombudsman directed the Member Inland Revenue (Operations) to circulate clear instructions to all field formations, making it mandatory that refund claims and adjustment requests must be resolved before any coercive tax recovery action is taken.
The directive was issued after a taxpayer approached the FTO over delays in the adjustment of income tax refunds from previous tax years against liabilities for Tax Year 2025.
According to the complaint, the taxpayer had filed refund adjustment requests within the prescribed time for Tax Years 2017, 2018, 2019, 2020, and 2023. However, despite timely submissions, the matter remained unresolved due to administrative delays and inaction by the tax department.
Frustrated by the delay, the taxpayer sought relief from the Ombudsman.
After examining the case, the FTO observed that refund claims for Tax Years 2017 to 2020 were still awaiting final determination because their admissibility was linked to the implementation of relevant appellate orders.
However, the Ombudsman expressed greater concern over the handling of the Tax Year 2023 refund claim, where the taxpayer had claimed Rs44.673 million.
The ruling noted that the department was legally required to process the refund within the prescribed time but failed to do so.
FBR acted only after FTO notices
The Ombudsman further pointed out that when the taxpayer later requested adjustment of the pending refund against Tax Year 2025 liability, the FBR again failed to respond in a timely manner.
According to the findings, it was only after the FTO Secretariat issued formal notices that the concerned tax office initiated proceedings on the pending refund application.
In its observations, the Federal Tax Ombudsman strongly criticized the tax authority’s inconsistent treatment of refund adjustments.
The ruling noted that while the department often acts quickly when adjusting refunds against its own tax demands, it frequently delays or withholds similar relief for taxpayers.
The Ombudsman described this conduct as arbitrary, unfair, and a clear case of maladministration under the FTO Ordinance, 2000.
As part of its recommendations, the FTO directed the Regional Tax Office (RTO) Islamabad to immediately process and decide the pending refund claim for Tax Year 2023 strictly in accordance with the law.
The FBR has also been instructed to submit a compliance report within 60 days, aimed at ensuring accountability and timely redress of taxpayer grievances.
This ruling is significant for taxpayers facing pending income tax refunds while simultaneously receiving tax recovery notices from FBR.
The decision reinforces the principle that the tax department cannot ignore lawful refund claims and proceed with recovery without first addressing taxpayer dues, offering stronger protection to businesses and individuals dealing with refund disputes.
