Legal cover proposed for tax audit

ISLAMABAD: Legislation is being recommended by the Federal Board of Revenue (FBR) to legalise taxpayers’ audit through computerised balloting.

This would end legal battles between taxpayers and the FBR that usually last for months and sometimes even years. The FBR on Monday informed the Senate Standing Committee on Finance and Revenue that the authorities have decided to provide a legal base for computerised audit through the upcoming Finance Bill 2010. “December 2009’s random computerised balloting was an administrative decision, which would now be covered by a law and help address the taxpayers’ concerns,” said a member of the FBR’s Legal Wing, Aqil Usman.

In December 2009, the FBR had selected 938 cases for audit through random computerised balloting. However, taxpayers went to the courts and got stay order against the decision. The audit process had remained suspended since 2005 when the FBR launched universal self-assessment scheme, relying on taxpayers’ integrity to declare their income. Usman said that the computerised audit system did not have a legal cover, which resulted in litigation. “Just the Lahore High Court has granted stay orders in more than 100 cases.”

Abdul Qadir Memon, president of the Pakistan Tax Bar Association, also said that if the proposed amendments are approved by the Parliament, they would bring an end to legal battles between taxpayers and tax authorities. Owing to faulty laws and corruption in the FBR, a fact many times admitted by former finance minister Shaukat Tarin, tax defaulters exceed tax payers in Pakistan. In a country of 170 million people, registered taxpayers are slightly over 2 million, and half of them are the salaried persons.

According to the FBR statistics, under the self-assessment scheme in 2008 one-third companies declared losses, the other one-third declared no profit no loss and only one third showed profits in their annual income tax returns. The FBR officials also told the Senate panel that they would not just rely on computerised balloting but also go for selective audits of taxpayers if they feel the need. This too has been proposed in the new Finance Bill. “If the FBR comes to know that a sector’s tax contribution is dipping then it would go for selective audit,” said an official of the FBR. Audit cases will be selected through balloting and sent to income tax commissioners.

Income tax commissioners asking to see books to carry out audit would be legal, said Usman. The Senate committee, headed by Senator Ahmad Ali of the Muttahida Qaumi Movement, initially opposed giving selective audit powers to the FBR and proposed the judicial use of discretion. “It will be against the spirit of universal self-assessment scheme,” said Senator Haroon Akhtar of Pakistan Muslim League - Quaid. However, the committee then recommended that “other than ballot, the selective audit should be based on reasonable grounds, recorded and communicated.” The Senate Standing Committee also cleared the Finance (Amendment) Bill with another recommendation, that taxpayers should maintain tax records for up to six years rather than five.

Published in the Express Tribune, May 18th, 2010.