Federal Tax Ombudsman directs FBR to adjust refunds before recovering Super Tax

The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to recover Super Tax from taxpayers only after adjusting any pending refund claims.

In an order issued on Wednesday, the ombudsman also ruled that the tax department’s insistence on recovering Super Tax in cash despite the existence of refund claims amounts to coercion and harassment of taxpayers.

The directive instructs the FBR to issue guidance to all Inland Revenue field formations to ensure that Super Tax recovery is carried out only after refund claims are adjusted.

The FTO also directed the Commissioner Inland Revenue of the Refund Zone at the Regional Tax Office Faisalabad to decide the complainant’s refund application for tax year 2024 in accordance with the law after providing a hearing to the taxpayer. The department has been asked to submit a compliance report within 45 days.

The complaint was filed under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 over the non-issuance of an income tax refund amounting to Rs4.506 million for tax year 2024.

According to the complaint, the taxpayer filed the income tax return under Section 114(1) of the Income Tax Ordinance, 2001 and submitted an electronic refund application on August 13, 2025.

The taxpayer stated that despite filing the application and sending reminders on December 17, 2025 and January 6, 2026, the department did not process the refund within the time required under Section 170(4) of the Income Tax Ordinance.

During the proceedings, it emerged that the department had issued an order under Section 4C of the Income Tax Ordinance on February 11, 2026 creating a Super Tax demand of Rs1.548 million for the same tax year.

The taxpayer requested that the refund amount be adjusted against the demand to avoid recovery proceedings. However, the departmental representative stated that the department had been informally pursuing a policy of collecting Super Tax through cash payment without allowing adjustment of refunds and did not cite any legal basis for the practice.

The ombudsman observed that the taxpayer’s request to adjust the refund against the demand for the same tax period was reasonable and that insisting on cash recovery despite a pending refund claim constituted coercion.

In its findings, the FTO held that the department’s refusal to adjust the refund against the Super Tax demand and its insistence on cash payment was arbitrary and discriminatory under the provisions of the FTO Ordinance.