FBR approves new policy for tax audit selection
Currently, more than 925,000 audit cases remain pending
Pakistan, Tajikistan: Stress laid on developing energy corridor PHOTO: FILE
ISLAMABAD:
Days after a provincial court set aside the tax audit policy on transparency concerns, the Federal Board of Revenue (FBR) approved a new policy for the selection of taxpayers for audit, which it insisted was compatible with the law.
The Audit Policy for 2017 pertaining to Tax Year 2016 has been approved by the FBR and the criteria for selection would be parametric, according to an official announcement by the FBR.
In March, the Lahore High Court had barred the federal government from enforcing the audit policy because of transparency concerns in the selection of cases. The court had ruled that the audit policy cannot be put into effect until the FBR framed risk parameters on the basis of which the selection of audit was to be made. The petitioner had pointed out that since no risk parameters had been provided by the FBR, it would give unbridled and unstructured powers to the officers.
Roadblock: ‘Confidentiality aspect of tax amnesty goes against Constitution’
The new audit policy is compatible with the law and has been prepared while keeping in mind the court’s directives, said Dr Mohammad Iqbal, the FBR spokesman. He said that except in the case of income tax, the risk parameters for selection of audit cases of sales tax and federal excise duty have been revealed by the FBR.
Dr Iqbal said that the Income Tax Ordinance bars the disclosure of the risk parameters, therefore, the FBR will keep them confidential.
A handout by the FBR stated that in order to provide ease and facilitate taxpayers, the case, once selected for audit through ballot, will not be selected for audit for the next two tax years under section 214C, section 72B of the Sales Tax Act 1990 and 42B of the Federal Excise Act 2005 respectively.
The FBR will conduct computer balloting on Thursday on parametric basis for selection of 7.5% cases for audit out of total filers after exclusions. All previously selected cases for audit would be excluded from the upcoming computer balloting. Salaried persons will also be excluded from the audit. However, in case the salary exceeds 50% of the minimum taxable income then the person could be selected for audit.
Currently, more than 925,000 audit cases remain pending before the FBR for a decision.
Tax amnesty offers no escape from prosecution
For picking sales tax audit cases, the FBR has determined criteria including a taxpayer who shows 10% year-on-year decline in value-addition of the goods produced and shows a consistent decrease in output as well as input tax ratio over the last three years. Additionally, showing a decrease in ratio of taxable supplies to total supplies by 10% or more as compared to previous year will also result in selection for audit.
A 10% reduction in value addition in manufacturing, more than 30% purchases from “unregistered persons” or more than 30% sales to “unregistered persons” will also result in picking a case for the audit. These criteria seem inconsistent with ground realities, as more than half of Pakistan’s economy is informal.
The other risk parameters include increase in carry forward of input tax and reduction in sales by margin of 10%.
The risk parameters for the federal excise duties are also similar.
The FBR has said that a universal self-assessment scheme necessitated effective tax audit based on risk management strategies in order to promote tax culture and compliance.
Published in The Express Tribune, April 11th, 2018.
Days after a provincial court set aside the tax audit policy on transparency concerns, the Federal Board of Revenue (FBR) approved a new policy for the selection of taxpayers for audit, which it insisted was compatible with the law.
The Audit Policy for 2017 pertaining to Tax Year 2016 has been approved by the FBR and the criteria for selection would be parametric, according to an official announcement by the FBR.
In March, the Lahore High Court had barred the federal government from enforcing the audit policy because of transparency concerns in the selection of cases. The court had ruled that the audit policy cannot be put into effect until the FBR framed risk parameters on the basis of which the selection of audit was to be made. The petitioner had pointed out that since no risk parameters had been provided by the FBR, it would give unbridled and unstructured powers to the officers.
Roadblock: ‘Confidentiality aspect of tax amnesty goes against Constitution’
The new audit policy is compatible with the law and has been prepared while keeping in mind the court’s directives, said Dr Mohammad Iqbal, the FBR spokesman. He said that except in the case of income tax, the risk parameters for selection of audit cases of sales tax and federal excise duty have been revealed by the FBR.
Dr Iqbal said that the Income Tax Ordinance bars the disclosure of the risk parameters, therefore, the FBR will keep them confidential.
A handout by the FBR stated that in order to provide ease and facilitate taxpayers, the case, once selected for audit through ballot, will not be selected for audit for the next two tax years under section 214C, section 72B of the Sales Tax Act 1990 and 42B of the Federal Excise Act 2005 respectively.
The FBR will conduct computer balloting on Thursday on parametric basis for selection of 7.5% cases for audit out of total filers after exclusions. All previously selected cases for audit would be excluded from the upcoming computer balloting. Salaried persons will also be excluded from the audit. However, in case the salary exceeds 50% of the minimum taxable income then the person could be selected for audit.
Currently, more than 925,000 audit cases remain pending before the FBR for a decision.
Tax amnesty offers no escape from prosecution
For picking sales tax audit cases, the FBR has determined criteria including a taxpayer who shows 10% year-on-year decline in value-addition of the goods produced and shows a consistent decrease in output as well as input tax ratio over the last three years. Additionally, showing a decrease in ratio of taxable supplies to total supplies by 10% or more as compared to previous year will also result in selection for audit.
A 10% reduction in value addition in manufacturing, more than 30% purchases from “unregistered persons” or more than 30% sales to “unregistered persons” will also result in picking a case for the audit. These criteria seem inconsistent with ground realities, as more than half of Pakistan’s economy is informal.
The other risk parameters include increase in carry forward of input tax and reduction in sales by margin of 10%.
The risk parameters for the federal excise duties are also similar.
The FBR has said that a universal self-assessment scheme necessitated effective tax audit based on risk management strategies in order to promote tax culture and compliance.
Published in The Express Tribune, April 11th, 2018.