LHC directsFBR to improve auditing procedure

KARACHI: Lahore High Court (LHC) directed the Federal Board of Revenue (FBR) to improve its taxpayers’ auditing procedure to get them rid of random selections. 

The single bench of the court, in its judgment on January 9, decided 829 petitions related to audits in favour of taxpayers. All the petitioners expressed annoyance over the random audit selection under the FBR Audit Policy 2015.

The court observed that a taxpayer selected and audited for the preceding tax year should not be selected and audited without giving reasons for such selection. Tax experts said the judgment would also influence the audit policy 2016 of the FBR under which the tax authorities might select cases of audit for tax year 2015 irrespective of their audit in the preceding year.

They said the judgment will have a far reaching impact on the assessments as far as the tax year 2014 and federal excise duty and federal sales tax period from July 1, 2013 to June 30, 2014 are concerned.   “The order may also affect earlier tax years and the following,” said Asif Kasbati , a senior tax expert at PricewaterhouseCoopers.

In its judgment, the court observed that the state had right to audit; corresponding to taxpayer’s duty to make correct declarations and comply with the statutory commands under the three federal taxing statutes, namely sales tax, federal excise and income tax.

The court ordered the FBR to rectify the defects in audit policy 2015 by pointing out that audit should complete on issuance of audit report. “If audit is not completed within the given timeframe, the selection shall be deemed to have been dropped,” it stated.

The practice of FBR for demanding tax payable after selecting a case for audit has been declared in violation to the provisions under the federal taxing statutes. It was observed that taxpayers should be given right to approach chairman against misbehaviour of tax officials related to conduct of audit. The court directed that persons selected for audit should be made part of FBR Act, 2007 under which any person aggrieved by any action done or taken for the enforcement of fiscal laws or due to any act of maladministration, corruption and misbehaviour by any officer of the board might prefer representation to the FBR chairman for grievance.