New section added to ST Act 1990: Concept of ‘investigative audit’ introduced

ISLAMABAD: A major change having far-reaching consequences proposed in the Finance Bill 2024 is the introduction of the concept of Investigative Audit by insertion of a new section in the Sales Tax Act 1990.

Explaining the Finance Bill 2024, a tax expert explained that previously the law did not contain such a concept. A general and vague concept of Investigation and inquiry was included in the section 25 concerning audit.

However, the terms were neither defined in the law nor it was explained as to how was this inquiry and investigation was to be initiated and conducted. There was no clarity regarding selection of a case for investigation and how these investigations are to be carried out.

As a result, proceedings in all cases involving tax fraud by Intelligence & Investigation department and the field offices of FBR were challenged in courts and due to lack of clarity in the law, an overwhelming majority of the cases were quashed. This lack of clarity and the absence of comprehensive legal guidelines was also a source of harassment for the taxpayers.

Without fulfilling the requirements of existence of any reasonable grounds for suspecting fraud, the taxpayers were raided and even arrested and coerced to make payments which were neither due nor determined through a valid judicial order.

On incorporation of the proposed section in the law, this situation will change altogether. Now the department will be empowered to conduct investigative audit, if on the balance of probabilities, its suspects that a taxpayer is involved in tax fraud.

Prior approval of the Commissioner in writing, will be mandatory for initiating investigative audit against such person. The department for invoking these provisions will therefore have to be in possession of evidence leading to the suspicion of tax fraud and the evidence and the resulting suspicion will also be subject to scrutiny by the courts.

The procedure for conduct of investigative audit has also been specified in the new section and a time period of ninety days has also been specified for completing the proceedings rather than leaving the taxpayers at the mercy of the department for indefinite time. The definition of tax fraud existence of which is the pre-condition for start of investigative audit has also been revamped.

At the same time section 25 that dealt with audit of sales tax record has also been substituted. till now the conduct of audit was subject to substantial litigation in the High Courts due to some ambiguities in the law.

The entire section has been substituted in an attempt to eliminate such legal controversies and to make sales tax audit really effective. He detailed procedure for carrying out audit and how the audit will conclude has also been provided for the first time. Additionally, the section 11 providing for passing of assessment orders has also been split into several sections to provide clarity and their linkage with audit and investigative audit.

Copyright Business Recorder, 2024