FBR empowers officials to initiate audit of non-filers, defaulters

KARACHI: The Federal Board of Revenue audit, already a feared ordeal, has got even sharper teeth, as the senior officials of the Inland Revenue are allowed to initiate audit of non-filers and defaulters, revenue body said on Monday.
Previously, the tax officials audit only those cases selected through computer balloting by the revenue body. No such mechanism now exists.
“A new section 214D has been inserted to the Income Tax Ordinance, 2001, which provides automatic selection of cases for audit that do not fulfill certain conditions. In cases return is not filed within the time; the tax payable for the tax year is not paid by the due date,” FBR said in an explanation to the Finance Act, 2015.
The FBR said the audit of non-compliant taxpayers would be conducted under the audit laws defined in the ordinance under which the IR commissioner has been empowered to seek any record or documents, including books of accounts maintained for conducting the audit.
“There is a legal binding on the taxpayers to allow access to the commissioner or any other officer authorised by the commissioner for the use of machine and software on which such data is kept,’ it said.
The tax experts said that the selection of audit cases was a thorny issue as two different provisions, 214C and 177 are available in the statute and tax practitioners interpret the selection of the audit cases only done by the FBR as defined under Section 214C. The latest changes will allow the tax departments to initiate audit cases soon after expiry of date for filing of income tax returns without waiting for the computerised balloting.
The FBR said that the taxpayer can only avoid automatic selection of audit in cases: If the taxpayer has declared taxable income in the immediately preceding tax year, then the tax paid on the basis of taxable income for the tax year is 25 percent higher than the tax paid during the immediately preceding tax year.
If the person has not filed return of income tax, then the tax at the rate of two percent of the turnover or the tax payable under Part I of the First Schedule, whichever is higher, has been paid along with the return.
If the taxpayer has filed return and has declared income below the taxable limit in the immediately preceding tax year, then the turnover declared for the tax year is not less than the turnover declared for the immediately preceding tax year; and the tax at the rate of two percent of the turnover or the tax payable under Part I of the First Schedule, whichever is higher, has been paid along with the return.
The FBR said that fulfilling these requirements will only exempt the persons from automatic selection of audit under Section 214D.
"The case can still be selected for audit under the section through random balloting," the revenue authority said.
The FBR also said that a person who is registered as a retailer under the sales tax rule and remains on the sales tax active taxpayers' list throughout the tax year will also be exempted from the automatic selection.