Tax officials allowed to conduct audit sans FBR nod

KARACHI: In a major move, the Federal Board of Revenue (FBR) has authorised Commissioners Inland Revenue (IR) to select taxpayers for income and sales tax and excise duty auditing without any prior approval, it was learnt on Wednesday.

The FBR said the commissioners can select cases for audit without approval from the board. In June, the FBR directed the tax offices regarding non-risk based audit to comply with the World Bank funded program Pakistan Raises Revenue Project.

Under the instructions, the commissioners were restricted to select case under the non-risk based audit and they were directed that for the period corresponding to 2018 and onwards the selection of cases for audit should be 10 percent of total number of cases.

Further, the initiation of audit was subject to approval by the Member Taxpayers Audit.

The FBR said the restrictions were against the statutes relevant to sales tax, income tax and federal excise. Furthermore, the limitation is also hurting revenue generation.

“Accordingly, in order to streamline the process of selection of cases as per the spirit of the relevant provisions of Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act, 2005, it has been decided that henceforth, the commissioner IR having jurisdiction shall select cases for audit Under Section 177 of Income Tax Ordinance, 2001, Section 25 of the Sales Tax Act, 1990 and Section 42 of the Federal Excise Act, 2005, on the basis of facts of the cases/revenue potential without seeking any approval from the Board [FBR] as the same is not envisaged under the provisions of these statutes,” the FBR said in a statement.

However, the FBR said the cases selected under relevant provisions would need to be concluded at the earliest and relevant commissioner IR would personally monitor the proceedings.

An official at Regional Tax Office Karachi said the audit is an important element to create deterrence against tax concealment and avoidance.

The official said the audit and enforcement activities were almost halted due to the restriction.

According to revenue statistics for the year 2019/20, the revenue generation through audit activities fell sharply 44 percent.

The collection of income tax under the existing demand fell to Rs47.3 billion in 20/2020. That was compared with Rs84 billion in the preceding fiscal year.

The tax official said the matter has been raised by the tax offices with the FBR to boost departmental efforts in audit and subsequent recoveries by lifting the restrictions.