[ez-toc] ISLAMABAD: The Federal Tax Ombudsman (FTO) has clarified that the Federal Board of Revenue (FBR) is not required to issue any prior notice or intimation before adjusting or recovering sales tax liabilities against income tax refunds.
In a recent order, the FTO stated that Section 170(3)(b) of the Income Tax Ordinance, 2001 places a legal obligation on the Commissioner to apply any refundable amount to offset outstanding tax liabilities under any other law. The order emphasized that such an adjustment is mandated by statute and therefore does not require prior notice to the taxpayer.
The FTO further observed that the issue of refund adjustment is already pending before the appellate forum, and as such, no intervention is warranted under the FTO Ordinance.
Background of the Case
According to details, the tax department had passed an order under Section 170(4) for Tax Year 2017 on September 10, 2025, adjusting an outstanding sales tax demand for Tax Year 2020.
The record shows that a refund of Rs193.29 million was created and adjusted against an outstanding sales tax liability of Rs374.97 million, which had been determined earlier on September 3, 2025.
The FTO’s order stated that the adjustment was in line with Section 170(3)(b), which requires the Commissioner to apply any refund to reduce a taxpayer’s outstanding liabilities under other tax laws.
“Adjustment is obligated by law while passing the refund order in case any liability of the same person is outstanding. Therefore, there is no maladministration involved in this complaint,” the FTO concluded.
Legal Debate
However, members of the legal community have objected to the decision, arguing that the FTO office should have implemented the Supreme Court’s judgment in the Pakistan LNG case, which provides specific guidance on tax adjustments and refund procedures.
Despite these objections, the FTO maintained that the law clearly allows such adjustments without prior notice, reinforcing the FBR’s authority to reconcile cross-tax liabilities automatically.