How long does FBR have to pay a textile exporter's sales tax refund, and is compensation due if it is late?

An exporter’s refund has a statutory deadline, and a late refund carries compensation. Both depend on when the refund claim counts as filed, and on whether the claim is paid automatically or sent for scrutiny.

What does the law say?

The deadline. Section 10(1) of the Sales Tax Act, 1990 applies where input tax paid on taxable purchases in a tax period exceeds output tax because of zero-rated local supplies or exports. The excess is to be refunded “not later than forty-five days of filing of refund claim”, in the manner and subject to the conditions the Board notifies.

Deductions and scrutiny. Section 10(2) says any unpaid tax, default surcharge or penalty under a law administered by the Board is adjusted from the refund first. Section 10(3) applies where there is reason to believe input tax or refund was claimed inadmissibly. Proceedings must then be completed within sixty days. An officer not below Additional Commissioner may extend this to one hundred and twenty days, and the Board may extend it further, to no more than nine months in total.

Compensation. Section 67 applies where a refund due under section 10 is not made within the time in section 10. The claimant is then paid, in addition to the refund, a sum equal to KIBOR per annum on the amount due. It runs from the day after the time expires to the day before the refund is paid.

How does the FASTER chapter work?

Chapter V-A of the Sales Tax Rules, 2006, headed “Refund to Exporters”, was inserted by S.R.O. 918(I)/2019.

• Rule 39B: it applies to refund claims from July 2019 onwards filed by exporters in five export-oriented sectors: textile, carpets, leather, sports goods and surgical instruments. By S.R.O. 1507(I)/2024, it also covers refund claims filed from 1 October 2024 by all exporters of goods.
• Extent of payment: the chapter caps the refund at the lower of the input tax actually consumed in exported or zero-rated goods, or any ceiling the Board sets.
• Rule 39D: the monthly return is the refund claim, with no separate electronic data. The claimant may file the return without Annex-H and submit Annex-H later, within one hundred and twenty days, or one hundred and eighty days for commercial exporters. The Commissioner may extend the one hundred and twenty days by up to sixty days on application. The date Annex-H is submitted is the date the refund claim is filed.
• Rule 39E: the Risk Management System routes each claim either to FASTER (Fully Automated Sales Tax e-Refund) or, if it does not meet the RMS parameters, to processing under Chapter V.
• Rule 39F: in FASTER, the system verifies the claim and generates a refund payment order for the admissible amount. The order goes to the State Bank of Pakistan within seventy-two hours of submission of the claim. The unverified part is re-checked weekly. After eight validation checks, including the first, any amount still uncleared moves to the STARR module under Chapter V.

For a commercial exporter, rule 39F pays only after the export proceeds are realised. The chapter’s miscellaneous provisions require an export proceeds realisation certificate or bank credit advice for those refunds, and let the Board direct any claim to STARR.

Worked example (illustrative figures)

A home textile exporter in Karachi files its return for July 2027 without Annex-H, then submits Annex-H on 10 September 2027. The refund due is Rs. 8,000,000. KIBOR is assumed at 11% a year purely for illustration. The actual rate is not in this corpus.

Step 1: the filing date. Under rule 39D, the claim is filed on 10 September 2027.

Step 2: the deadline. Forty-five days from 10 September:

• 11 to 30 September: 20 days
• 1 to 25 October: 25 days
• Total: 45 days, so the deadline is 25 October 2027.

Step 3: late payment. Suppose the refund is paid on 24 December 2027. Section 67 runs from 26 October to 23 December:

• 26 to 31 October: 6 days
• November: 30 days
• 1 to 23 December: 23 days
• Total: 59 days

Step 4: compensation. Rs. 8,000,000 × 11% = Rs. 880,000 a year. Rs. 880,000 × 59 ÷ 365 = Rs. 142,247 (rounded). Section 67 does not say whether a 365-day year is used. That is an assumption in this illustration.

If the claim cleared FASTER, rule 39F would have sent the payment order within seventy-two hours of 10 September, and no delay would arise.

What if the refund is under investigation?

The first proviso to section 67 suspends the compensation. Where there is reason to believe the refund is not admissible, no additional amount is payable until the investigation is completed and the claim is accepted or rejected. Section 10(3) caps that inquiry at sixty days, extendable in stages up to nine months.

Common mistakes

• Counting from the return date. When Annex-H is filed later, rule 39D makes the Annex-H date the filing date.
• Treating seventy-two hours as a legal deadline for every claim. It applies to claims routed to FASTER. Claims routed by RMS to Chapter V follow that chapter.
• Expecting compensation during an investigation. Section 67 withholds it until the claim is accepted or rejected.

What to check in the official text

• Sections 10 and 67 of the Sales Tax Act, 1990, as amended to 30 June 2026.
• Rules 39B to 39G of the Sales Tax Rules, 2006, as amended to 30 June 2025, and Chapter V for claims routed out of FASTER.
• Any Board notification fixing a refund ceiling under Chapter V-A, or fixed refund rates under the second proviso to section 10(1). These are not in this corpus.
• The KIBOR rate that applied in the period of delay. It is not published in this corpus.