FBR’s FIFO policy cannot override taxpayer rights, Ombudsman rules after Rs42.86m refund delay
ISLAMABAD:
The Federal Tax Ombudsman has recommended that the Federal Board of Revenue (FBR) introduce a faceless income tax refund system to enable electronic transfer of refunds directly into taxpayers’ bank accounts after automated verification of eligible claims.
The recommendation was issued while deciding a complaint filed by M/s Sprint Oil & Gas Services FZC, which had sought payment of an income tax refund amounting to Rs42.86 million for tax year 2025. The company submitted its online refund application on April 13, 2026; however, the refund was not issued even after the legally prescribed 60-day period had lapsed.
The petitioner argued that the delay constituted maladministration under the Federal Tax Ombudsman Ordinance, 2000. The applicant also cited an order of the Islamabad High Court directing the implementation of an automated refund system under Section 170A of the Income Tax Ordinance, 2001, to minimise taxpayer-officer interaction and expedite refund processing.
In response, the Chief Commissioner Inland Revenue, Corporate Tax Office (CTO) Islamabad, stated that refund applications were being processed on a first-in, first-out (FIFO) basis in line with FBR instructions. The authority added that scrutiny of the taxpayer’s claim was ongoing and that notices had been issued seeking required documentation.
After reviewing the record, the Ombudsman held that the refund application had remained pending beyond the statutory timeframe, amounting to maladministration due to negligence and inattention by the department. The Ombudsman further clarified that the FIFO policy could not justify prolonged delays, as administrative procedures cannot override the legal rights of taxpayers.
The Ombudsman directed the FBR to instruct the Commissioner Inland Revenue (Refund Zone), CTO Islamabad, to decide the pending refund claim in accordance with the law, determine the nature of the tax paid or deducted, and submit a compliance report within 30 days.
In a significant policy recommendation, the Ombudsman advised the FBR to operationalise a “faceless income tax refund system” under Section 170A of the Income Tax Ordinance, 2001. Under the proposed system, refunds verified through the Board’s computerised system could be transferred directly into taxpayers’ registered bank accounts without the need for a formal application – similar to the faceless customs clearance and assessment system already introduced by the FBR.
According to the Ombudsman, this measure would enhance system efficiency, reduce taxpayer grievances, and promote a modern, technology-driven tax administration.
