FTO Directs FBR to Adjust Refunds Before Super Tax

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

In an order issued on Wednesday, the ombudsman further held that the tax authorities’ practice of demanding Super Tax in cash despite the presence of pending refunds constitutes coercive conduct and amounts to harassment of taxpayers.

The directive requires the FBR to circulate clear instructions to all Inland Revenue field formations to ensure that recovery of Super Tax is undertaken only after due adjustment of admissible refund claims.

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 strictly in accordance with law after providing the taxpayer an opportunity of hearing. The department has been asked to submit a compliance report within 45 days.

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

According to the complainant, the taxpayer filed the income tax return under Section 114(1) of the Income Tax Ordinance, 2001 and subsequently 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 tax department failed to process the refund within the prescribed timeframe under Section 170(4) of the Income Tax Ordinance.

During the proceedings, it was revealed 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 outstanding demand to prevent recovery proceedings. However, the departmental representative maintained that the department had been informally pursuing a policy of collecting Super Tax through cash payments without allowing adjustment of refunds, while failing to provide any legal justification for such 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 amounted to coercion.

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