FBR closes 310,000 tax audit cases
Cases selected for 2014-17 due to taxpayers’ failure to file returns on time
Sources said the FBR did not have requisite and trained human resources to undertake such a huge audit task. PHOTO: FILE
ISLAMABAD:
The Pakistan Tehreek-e-Insaf (PTI) government has quietly closed over 310,000 tax audit cases that had been automatically selected from 2014 to 2017 due to the failure of taxpayers to timely file tax returns and pay due taxes.
The Federal Board of Revenue (FBR) has closed over 310,000 or more than half of the total opened 600,000 audit cases, highly placed sources told The Express Tribune. The FBR also issued a notification on Friday to give effect to the decision.
Individuals, associations of persons, and companies are beneficiaries of the FBR’s decision that is rooted in its incapacity to go after hundreds of thousands of people. The FBR lacks human resources to effectively audit 600,000 cases.
The idea of closing audit cases came from Member Taxpayers Audit Nadeem Rizvi, who is now being tipped as the new member Inland Revenue Operations. The other two probable names are Asim Ahmad and Faiz Elahi Memon.
“If all values in the parameters, as per the system, are matched with the declaration in income tax returns and/or wealth statement or otherwise, their values are returned nil and field office does not have any third-party information that audit may be concluded by accepting the declared version,” said the FBR notification.
These audit cases had automatically been selected under Section 214D of the Income Tax Ordinance 2001. In 2015, the Pakistan Muslim League-Nawaz (PML-N) government had introduced Section 214D in the ordinance to automatically select those persons and companies for an audit that did not file income tax returns within due or extended dates or did not pay taxes.
However, the then government did not build the FBR’s capacity, resulting in hundreds of thousands of pending cases.
Subsequently, the government abolished Section 214D through the Finance Act 2018. However, criteria had been given to close these outstanding cases including recovering 25% additional tax from the people.
The FBR has now decided that where it does not have third-party information and data is matching with previous declarations, it will close all such cases.
For the closure of audit cases selected under Section 214D, the FBR had introduced a new clause 214E in the Income Tax Ordinance through the Supplementary Act 2018.
It had offered taxpayers to revise their returns voluntarily by December 31, 2018, along with payment of 25% higher tax than that paid with the return based on taxable income and where no tax is payable, 2% of the turnover and where no turnover is declared, a penalty may be paid under Section 182.
The FBR could not make progress and over 600,000 cases remained opened despite offering the taxpayers to pay 25% additional tax to get the cases closed. The government made another amendment through the Tax Laws Second Amendment Ordinance 2019, authorising the FBR to prescribe procedures for closing the audit cases.
“To conclude audit of the pending cases selected under Section 214D for the tax year 2015, 2016 and 2017, a procedure has been framed for three classes of persons, individuals, associations of persons and companies whereby all field formations will conclude audit cases accordingly,” said the FBR notification issued on Friday.
In this regard, the information technology wing of the FBR will provide relevant data for all commissioners in their logins, who will conclude the audit after thorough scrutiny based on available data.
The scrutiny will take place based on withholding tax transactions, purchase of properties, vehicles, utility expenses, rent expenses, bank information if available, and application of any audit selection parameter as per audit policy.
Sources said the FBR did not have requisite and trained human resources to undertake such a huge task. They said the outstanding cases were becoming a headache for both the taxpayers and the FBR officers.
But the FBR has lost yet another opportunity to keep these people in the tax net and get 25% more taxes from them.
The income tax base in Pakistan remains narrow, which is resulting in an additional burden on the existing taxpayers as well as on those who are not required to pay taxes.
FBR’s tax-to-GDP ratio is expected to remain at 9.3% in the current fiscal year. The International Monetary Fund (IMF) has projected the FBR’s collection at Rs3.9 trillion in the year, including hundreds of billions of rupees in withheld income tax and sales tax refunds.
Although the FBR blames Covid-19 for its poor performance for the second successive year, the partial lockdown started affecting tax revenues only in the third week of March.
Even if the Covid-19 had not struck the world, the FBR’s collection would have remained around Rs4.6 trillion despite imposing a record Rs735 billion in additional taxes. The original tax collection target for the current fiscal year was Rs5.5 trillion.
Under Section 214C, the FBR has the legal mandate to select cases for an audit of income tax affairs through computer and random balloting. But the FBR keeps the parameters confidential.
In April last year, the FBR had selected 14,074 cases through computer balloting, which were equal to 2.3% of the returns filed in the tax year 2017. For this year, the FBR was in the process of finalising the audit policy.
Published in The Express Tribune, April 30th, 2020.
The Pakistan Tehreek-e-Insaf (PTI) government has quietly closed over 310,000 tax audit cases that had been automatically selected from 2014 to 2017 due to the failure of taxpayers to timely file tax returns and pay due taxes.
The Federal Board of Revenue (FBR) has closed over 310,000 or more than half of the total opened 600,000 audit cases, highly placed sources told The Express Tribune. The FBR also issued a notification on Friday to give effect to the decision.
Individuals, associations of persons, and companies are beneficiaries of the FBR’s decision that is rooted in its incapacity to go after hundreds of thousands of people. The FBR lacks human resources to effectively audit 600,000 cases.
The idea of closing audit cases came from Member Taxpayers Audit Nadeem Rizvi, who is now being tipped as the new member Inland Revenue Operations. The other two probable names are Asim Ahmad and Faiz Elahi Memon.
“If all values in the parameters, as per the system, are matched with the declaration in income tax returns and/or wealth statement or otherwise, their values are returned nil and field office does not have any third-party information that audit may be concluded by accepting the declared version,” said the FBR notification.
These audit cases had automatically been selected under Section 214D of the Income Tax Ordinance 2001. In 2015, the Pakistan Muslim League-Nawaz (PML-N) government had introduced Section 214D in the ordinance to automatically select those persons and companies for an audit that did not file income tax returns within due or extended dates or did not pay taxes.
However, the then government did not build the FBR’s capacity, resulting in hundreds of thousands of pending cases.
Subsequently, the government abolished Section 214D through the Finance Act 2018. However, criteria had been given to close these outstanding cases including recovering 25% additional tax from the people.
The FBR has now decided that where it does not have third-party information and data is matching with previous declarations, it will close all such cases.
For the closure of audit cases selected under Section 214D, the FBR had introduced a new clause 214E in the Income Tax Ordinance through the Supplementary Act 2018.
It had offered taxpayers to revise their returns voluntarily by December 31, 2018, along with payment of 25% higher tax than that paid with the return based on taxable income and where no tax is payable, 2% of the turnover and where no turnover is declared, a penalty may be paid under Section 182.
The FBR could not make progress and over 600,000 cases remained opened despite offering the taxpayers to pay 25% additional tax to get the cases closed. The government made another amendment through the Tax Laws Second Amendment Ordinance 2019, authorising the FBR to prescribe procedures for closing the audit cases.
“To conclude audit of the pending cases selected under Section 214D for the tax year 2015, 2016 and 2017, a procedure has been framed for three classes of persons, individuals, associations of persons and companies whereby all field formations will conclude audit cases accordingly,” said the FBR notification issued on Friday.
In this regard, the information technology wing of the FBR will provide relevant data for all commissioners in their logins, who will conclude the audit after thorough scrutiny based on available data.
The scrutiny will take place based on withholding tax transactions, purchase of properties, vehicles, utility expenses, rent expenses, bank information if available, and application of any audit selection parameter as per audit policy.
Sources said the FBR did not have requisite and trained human resources to undertake such a huge task. They said the outstanding cases were becoming a headache for both the taxpayers and the FBR officers.
But the FBR has lost yet another opportunity to keep these people in the tax net and get 25% more taxes from them.
The income tax base in Pakistan remains narrow, which is resulting in an additional burden on the existing taxpayers as well as on those who are not required to pay taxes.
FBR’s tax-to-GDP ratio is expected to remain at 9.3% in the current fiscal year. The International Monetary Fund (IMF) has projected the FBR’s collection at Rs3.9 trillion in the year, including hundreds of billions of rupees in withheld income tax and sales tax refunds.
Although the FBR blames Covid-19 for its poor performance for the second successive year, the partial lockdown started affecting tax revenues only in the third week of March.
Even if the Covid-19 had not struck the world, the FBR’s collection would have remained around Rs4.6 trillion despite imposing a record Rs735 billion in additional taxes. The original tax collection target for the current fiscal year was Rs5.5 trillion.
Under Section 214C, the FBR has the legal mandate to select cases for an audit of income tax affairs through computer and random balloting. But the FBR keeps the parameters confidential.
In April last year, the FBR had selected 14,074 cases through computer balloting, which were equal to 2.3% of the returns filed in the tax year 2017. For this year, the FBR was in the process of finalising the audit policy.
Published in The Express Tribune, April 30th, 2020.