Risk-based audit system: FBR to select less than 10pc cases

ISLAMABAD: The Federal Board of Revenue (FBR) plans to select less than 10 percent cases on basis of risk-based audit system in second half of the current financial year 2019-20.

The FBR is preparing prototype software for conducting this risk -based audit in order to create deterrence and generating multibillion rupees tax demands, as the tax machinery has been tasked with collecting the highly ambitious tax target of Rs5503 billion for the current fiscal year under the IMF programme.

The tax administration reforms would bolster the authorities’ efforts to collect taxes. The implementation of a full, risk-based audit framework will be facilitated by the recent reversal of legal provisions limiting the use of tax audits and will be supported by an increase in legal penalties for noncompliance.

“Moreover, licenses for the track-and-trace system for excises on cigarettes will be issued by end-September 2019 (structural benchmark), with a system roll-out by end-March 2020,” the IMF had stated in its document. However, the government had not finalized for awarding this contract. Now the financial bidding of 11 parties will be opened on October 10, 2019 as technical evaluation is still underway, said official sources.

The Pakistani authorities have assured the IMF that tax administration reform will be crucial to collect taxes broadly and fairly. Given the fragmented nature of our tax administration, the government will create a new semi-independent national tax authority to collect the main revenue sources.

“We have also reversed recent legal provisions that limit the use of tax audits. Other tax administration measures may include: (i) implement a full, risk-based audit framework; (ii) increase legal penalties for tax non-compliance; and (iii) issue licenses for the track-and-trace system for excises on cigarettes by end-September 2019 (structural benchmark) and implement the system by end-March 2020” it added.

Moreover, the FBR will commit to not grant further tax amnesties under continuous structural benchmark of the IMF program. According to presentation of the FBR on audit policy under the guidance of consultants of the Tax Accelerating Growth and Reform (TAGR) project, the FBR is in the process of developing a risk-based audit selection software to be finalized by February 2020. The UK’s tax authority is assisting it developing the risk based audit mechanism, said the official. The prototype of the software for developing risk-based audit selection system is under process.

The new risk-based audit strategy would cover 15 comprehensive field audits of large taxpayers selected by the risk-based selection tools. The number of comprehensive field audits of large taxpayers would be increased to 25 and 45 on per year basis.

According to a tweet of Chairman FBR Shabbar Zaidi, a taxpayers' friendly, easy, simple and effective audit framework will be launched in the first week of October 2019. The purpose is to facilitate reasonable taxpayers. It will be designed to have a paradigm shift in tax culture.