To detect potential tax evaders: FBR to outsource audit of individuals, companies

ISLAMABAD: The Federal Board of Revenue (FBR) has decided to outsource audits of high-net-worth individuals and companies to detect potential tax evaders.

For this purpose, the FBR will hire audit firms having a workforce of 4,000 professional auditors in its fold to scrutinise the income and assets of high-net-worth (HNWs) individuals.

However, the hiring of audit firms having a workforce of thousands of professional auditors requires a budget of billions of rupees but no allocation has been earmarked by the government. FBR Chairman Rashid Mahmood Langrial is all set to extend an extensive briefing to Prime Minister Shehbaz Sharif in the coming few days and apprise him the tax gap analysis shows that there is a potential of Rs7,100 billion that could be fetched by bringing changes in existing tax laws, introducing digitisation and placing effective enforcement.

Tax authorities shared the data of both Income Tax and General Sales Tax (GST) and found that out of 5.5 million filers in both major taxes, there are only 8 percent or 45,000 return filers in Income Tax and GST who are contributing 92 percent tax amounts.

In such a scenario, what is the need to waste all energies on the remaining 92 percent who are basically under filers.

Now the FBR is going to take some administrative measures as Nadra’s data will be used for nudging the under filers. Written notices will be dispatched to all those who will be identified through Artificial Intelligence (AI) to share all details of their transactions so that they could incorporate in their tax returns for the current fiscal year.

There are rampant numbers of Below Taxable Limit (BTL) in all categories. There are 0.6 million filers in salaried class who showed them into BTL list and file their return to show them as filers.

The remaining 1.3 million filers in salaried class paid Rs251.4 billion income tax in tax year 2023-24. There are only 15,000 in salaried class who showed income of Rs10 million and paid Rs93 billion.

Total Sales Tax filers stood at 24,000 out of which only 5,043 belonged to manufacturers who paid out Rs745 billion tax in last fiscal year. There are 80,000 registered companies and nearly 6,000 showed more than Rs10 million annual income. 47,000 filed nil returns. 5,043 companies paid Rs745 billion tax. Against the registered nearly 100,000 AOPs, less than 4,000 showed more than Rs10 million annual income. 60,000 AOPs were nil filers. These over Rs10 million worth income people paid Rs150 billion income tax.

As against 3.7 million filer business individuals, 2.4 million filed nil returns. Only 20,000 showed more than Rs10 million annual income. Out of 2 million salaried class filers, 630,000 were nil filers. There were about 15,000 salaried persons having annual income of Rs10 million or more. They paid Rs93 billion income tax. The FBR is expanding its efforts to ensure compliance and enhance enforcement capabilities in response to significant financial activities observed over the past years.

With transactions of trillions of rupees in purchase and sale of properties, motor vehicles and banking transactions, there is a critical need for specialised auditing services. Currently, FBR’s cadre of 500 auditors requires major reinforcement to effectively manage the scale of audits necessary. In this context, FBR will invite Expressions of Interest from experienced and reputable Payroll Firms capable of employing and providing 4,000 professional and qualified auditors. These auditors will be tasked with conducting a comprehensive audit of the top 5 percent wealthiest individuals in the country. The contract will extend for a period of one year, with the possibility of further engagement of one or more leading payroll firms based on their demonstrated experience and capacity.