FBR selects over 12,000 taxpayers for audit

These companies are suspected of tax evasion.

ISLAMABAD: The Federal Board of Revenue (FBR) has selected over 12,600 cases for audit through computer balloting, the third attempt to reintroduce audit of taxpayers in the last four years, after earlier two efforts were frustrated by companies exploiting legal lacunas.

The audit will be for tax year 2011 as the FBR has not yet completed data of previous tax year. Separate balloting was held here on Monday for selecting return filers in the categories of income tax, sales tax and federal excise duty.

The move came following a decision of the Board-in-Council, the highest decision-making body of the FBR, which gave the go-ahead to separate risk parameters for income tax, sales tax and federal excise duty.

In November last year, the FBR had picked 9,740 cases for audit on suspicion of massive tax evasion. However, the Lahore High Court stopped the move on the ground that risk parameters for selecting audit cases had not been approved by the Board-in-Council.

Under the World Bank-funded Tax Administration Reforms Programme (TARP), the country had abandoned audit and adopted the Universal Self-Assessment Scheme, based on the idea that the taxpayer is honest and will declare actual value of his income.

Since 2009, the FBR had been trying to reintroduce audit, but all such attempts were thwarted by the taxpayers. In first such move, the FBR selected over 900 cases while in the second attempt it shortlisted 9,740 cases.

According to the FBR, the selection of 12,609 cases out of 1.7 million comprises just 0.75%, indicating that audit selection is not aimed at generating revenue, rather it will serve as a deterrent against evasion.

It has selected approximately 15% of returns filed in Large Taxpayer Units, 5% of returns filed by corporate taxpayers and 2% of returns filed by non-corporate taxpayers in Regional Tax Offices.

The Board-in-Council has approved risk parameters for the audit of corporate sector. These include firms that show a 5% difference between value of imports in income tax returns and value of declared imports. Other firms that will come on FBR’s radar screen include those that show a 10% decline in sales over previous year, claim refund of Rs10 million, show persistent decrease of more than 5% in net profit over last three years and show addition to plant and machinery exceeding Rs200 million.

Companies that show addition to plant and machinery in tax year 2009 without a corresponding increase in turnover for tax year 2011 will also be subject to audit. Another important parameter is that if a company puts financial cost at more than 5% of turnover.

Published in The Express Tribune, February 26^th, 2013.

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