CBR enhances record keeping period from 3 to 5 years

The Central Board of Revenue (CBR) has enhanced the record keeping period from 3 to 5 years to detect sales tax frauds, including bogus refund cases through post-refund audit of the last five years.
Sources told Business Recorder on Monday that time period for record retention in sales tax and federal excise was raised from three to five years in the last budget. It was a conscious decision taking into account several factors, including best international practices. In certain cases, the sales tax department could not properly conduct post-refund audit due to the absence of necessary information about the business transactions of the last five years.
The sources explained that there was need to thoroughly scrutinise past tax record during the investigation for unearthing frauds committed by units registered with the sales tax department.
Contrary to this, it was observed that the old record was deleted due to absence of legal backing in the Sales Tax Act, 1990. Secondly, the cases also become time barred where the department was unable to further pursue the investigation in courts. Time barred cases also result in revenue loss to the national exchequer.
Now, taxpayer has to maintain five-year period record for customs, sales tax and federal excise. The sources said that the board had also amended sub-section (2) of section 211 of the Customs Act. The word "three" has been substituted with the word "five" to provide maintenance of record brining this provision in line with section 32.
Following amendment, all importers, exporters and claimants of duty drawback, refunds or any notified concessions, terminal operators, owners of the warehouses, customs agents and the licensed customs bonded carriers, carrying out business relating to international trade, would be required to maintain and keep records and correspondence concerning import and export transactions.
The records required shall be kept for a period not less than five years in such form as the Board may by notification in the official gazette, specify.
When contacted, a tax expert said that the Board has increased record retention period from 3 to 5 years in view of best international practices. In UK and New Zealand, the minimum period of record keeping pertaining to value added tax (VAT) is 6 and 7 years respectively.
Both these countries are top ranking in VAT regime and in case of serious fiscal frauds the UK tax authorities can check 20 years old business transactions.
The provision has been introduced in Pakistan to harmonise section 24 with section 36 of the Sales Tax Act, 1990. Moreover, the law was further harmonised with the Customs Act with reference to the fiscal fraud provisions under section 32A. The record keeping for five years may increase cost of doing business of registered persons, expert added.