Salaried class auditing termed antithesis to broaden tax base

KARACHI: Tax managers are irked by a departmental decision of selecting salaried individuals for auditing as they believe such an exercise would be an antithesis to the broadening of tax base drive, sources said on Tuesday.    

In early January, the Federal Board of Revenue (FBR) started conducting computer balloting and selected 93,277 cases for audit under income and sales taxes and federal excise.

The highest number of 82,090 cases was selected from income tax non-corporate group.  The selection was made according to the Audit Policy 2016, which withdrew audit exemptions for a certain classes. 

An official said it was the first time since the implementation of Income Tax Ordinance 2001 that salaried individuals were chosen for auditing. “The board (FBR) has taken U-turn from its previous policy,” an irksome official said on condition of anonymity.

“And, I am telling you this will exert more pressure on the tax machinery.”  The Federal Board of Revenue, in its audit policy two years back, had accepted that there was no need of auditing fixed income groups such as salary cases, cases of exclusively share income from association of persons and under final or presumptive tax regimes.

Receipts in all such cases are verifiable and the tax payable is fully withheld or deducted in advance. “Auditing fixed income will negate the spirit of facilitation envisaged in the universal self assessment scheme,” read the Audit Policy 2014.

Tax collectors are virtually bending backward to achieve the annual revenue target for the current fiscal year of 2016/17. The FBR managed to collect Rs1,452 billion during the first half (July-Dec) period of the current fiscal year against the desired target of Rs1,594 billion, registering a shortfall of Rs142 billion. The apex tax authority has to collect Rs2,152 billion during the ongoing second half in order to hit the annual target of Rs3,604 billion. 

Salaried individuals, who have already been issued the audit notices, complained that it was difficult to furnish a “plethora of documents demanded by the Federal Board of Revenue.”

Salary-drawers account for around 40 percent of total return filers. FBR’s policymakers, however, said the risk-based audit selection approach would not affect the genuine and compliant taxpayers. 

“Fixed income group cases, where online system noticed discrepancies, were selected for auditing,” claimed a senior tax official. The official said several individuals, taking advantage of audit immunity to fixed income group, had accumulated ill-gotten money.

The FBR said the selection was made on risk-based parameters instead of random balloting. Risk-based audit selection follows monitoring of a person’s travelling, property or vehicle buying, club membership and banking transactions.

Rehan Hussan Jafri, president of Karachi Tax Bar Association also opposed this policy shift.  “Income tax of salaried individuals is deducted at source. The FBR should ensure their compliance with returns filing,” Jafri said.

“The board should take up a case on individual basis as envisaged under the law if any discrepancy is found.” KTBA president reiterated that the Federal Board of Revenue should extend time for filing of income tax returns up to June 30 for the tax year 2016. A large number of genuine taxpayers failed to file returns, he added.