The Federal Board of Revenue (FBR) has replaced computerised random balloting mechanism with risk-based parametric selection procedure for picking 7.5 percent cases for audit for Tax Year 2015. According to the FBR sources, the FBR will not carry out random computer ballot this year for selection of cases for audit out of the total Income Tax, Sales Tax and FED returns filed for Tax Year 2015.
The Board would select cases on the basis of risk-based parameters for audit. Under the new audit policy, instead of random computer ballot, the FBR will conduct parametric selection through risk based approach. In the presence of risk-based parameters, there is no need to elaborate exclusions from audit. Similarly, parameters would be applied in such a way that would exclude required categories of taxpayers from audit. For example, the risk-based parameters have already excluded salaried class from audit.
According to the audit policy 2016 issued by the FBR, since 2001 voluntarily compliance has been the primary focus of FBR. FBR has always trusted tax payers for their declarations. In order to promote tax culture and compliance many audit policies were launched in the past. This Audit policy has been carefully drafted keeping in mind the wisdom and experience behind the past policies.
For the audit purposes, the selection of cases in the past was mostly through random ballot. The Audit Policy 2016, has proposed a paradigm shift from the past. Its focus has been realigned from random to parametric selection and from general to risk based approach. This approach will minimise chances or selection of compliant tax payers resulting ill increased confidence in the system. This new trend in taxpayers' audit will not only promote compliance with the existing tax laws but will also generate increased revenues through better declarations for better public spending by the Government. The right audit approach will help FBR in broadening the tax base and in focusing on high risk areas. This can be assured through equitable tax policies where a taxpayer knows that good citizens are appreciated, the FBR said. The FBR shall conduct computer ballot on parametric basis for selection of 7.5% cases for audit out of the total Income Tax, Sales Tax and FED returns filed for Tax Year 2015 and Tax Periods ie 1st July 2014 to June 2015 as determined by the Board-in-Council.
Exclusion: Following exclusions have been identified and approved by the Board under relevant rules which pertain to cases where selection (or audit by the Board is not required for the year. Income Tax: All cases already selected for audit by the Commissioners Inland Revenue under section 177 of the Income Tax Ordinance for Tax Year, 2015. All cases already selected for audit by the Director I&I (IR) under section 177 of the Income Tax Ordinance for Tax Year, 2015. All cases already selected for audit under section 214 D or the Income Tax Ordinance, 2001 for the Tax Year, 2015.
Sales Tax Exclusions: All cases already taken up for audit for Tax Period(s) July 2014 to June 2015 under section 25 or 38 of the Sales Tax Act, 1990 by the Commissioners Inland Revenue: Cases already taken up for audit/investigation for tax period(s) July 2014 to June 2015 under section 25 or 38 of the Sales Tax Act, 1990 by the Directorate of I&I (IR).
Federal Excise: All cases already taken up for audit for tax period(s) July 2014 to June 2015 under section 46 of the Federal Excise Act, 2005 by the Commissioners Inland Revenue and cases already taken up for audit/investigation for tax period(s) July 2014 to June 2015 under section 46 of the Federal Excise Act, 2005 by the Directorate of I&I (IR).
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