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New policy for tax audit selection

According to the media reports, the Federal Board of Revenue has approved a new audit policy to make the selection of taxpayers more parametric, transparent and in conformity with the law. Earlier, the Lahore High Court had stopped the federal government from enforcing the audit policy allegedly because of the lack of transparency in the selection process of the taxpayers. The court ruling came after a petitioner challenged unbridled and unrestricted powers enjoyed by the tax authorities under the audit policy, allegedly creating a milieu of witch-hunting and harassment among the genuine taxpayers. The LHC had then ruled that no audit policy could be enforced until the FBR frames risk parameters on the basis of which the taxpayers are selected for audit. The FBR authorities now claim the new audit policy will be compatible with the prevailing laws in line with the directions of the court. Except the case of income tax, the risk parameters for selection of audit cases of sales tax and federal excise duty have been revealed in the policy. The Income Tax Ordinance bars the authorities from disclosing the risk parameters. Under the new policy, the cases once selected for audit through ballot, will not be selected for another audit for the next two tax years under section 214C, section 72B of the Sales Tax Act 1990 and 42B of the Federal Excise Act 2005.

In the next computer balloting, which is going to be held in a day or two, at least 7.5 percent cases will be selected for audit out of the total filers after exclusions. It means all previous cases, which were selected for audit, will be excluded from the balloting. At least 925,000 audit cases are pending before the authorities for a decision. At least 10 percent reduction in value addition in manufacturing and more than 30 percent sales or purchases to or from non-taxpayers will qualify a taxpayer to select him for the audit. When a system incorporates new changes in it, one must keep the exercise as simple as possible. But it is generally observed that change in the system brings more troubles for the taxpayers than facilitation. Devising the criteria with labyrinths of this way or that way makes the changes a futile exercise. It necessary that strings of conditionalities should not be attached with concessions to allow the tax officials to work within their domains and the taxpayers to fulfill their obligations in a comfortable manner.


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