LAHORE: The Federal Tax Ombudsman (FTO) has ruled that tax authorities are not required to issue any prior notice or intimation before adjusting or recovering outstanding sales tax liabilities from a taxpayer’s income tax refund.
In its latest order, the FTO clarified that Section 170(3)(b) of the Income Tax Ordinance, 2001 imposes a statutory obligation on the Commissioner to apply any refundable amount to offset outstanding tax liabilities under any other law. The Ombudsman observed that since the adjustment is mandated by law, it does not necessitate any prior notice to the taxpayer.
The case involved the adjustment of income tax refunds against existing sales tax demands, which the complainant challenged as unlawful. However, the FTO noted that the issue is already under consideration at the appellate forum and therefore does not warrant intervention under the FTO Ordinance.
The order stated that the tax department had issued a refund order under Section 170(4) for Tax Year 2017 on September 10, 2025, amounting to Rs193.29 million, which was adjusted against an earlier sales tax demand of Rs374.97 million for Tax Year 2020, created on September 3, 2025.
“The adjustment of tax has been made in accordance with Section 170(3)(b), which binds the Commissioner to apply the refund to reduce outstanding tax liabilities under any other law,” the FTO order said.
Rejecting allegations of maladministration, the FTO concluded that the adjustment was a legal obligation when any liability of the same taxpayer is outstanding.
Meanwhile, the Auditor General of Pakistan (AGP) has reportedly detected discrepancies between the tax and refund figures maintained by the Federal Board of Revenue (FBR) and the State Bank of Pakistan (SBP), further highlighting data inconsistencies in revenue management.
