Misunderstandings about sales tax audit system

Sales Tax is the value-added tax, which is collected in various stages of production and consumption through various channels of business activity, the sale of one is the purchases of the other. The purchaser adjusts the input tax from the output tax and transfers its effect to another one. This is the indirect tax, the burden of which ultimately falls upon the final consumers.
WHO IS THE TAXPAYER? In the broad sense the tax payers are those, who actually consume the goods and all those channels (importers, manufactures, distributors and wholesalers and retailers) that are responsible for catering for the goods to the final consumers (General public) are actually the "Tax Collectors" on behalf of the government.
The role of the government officials in this sense is of the facilitator, but all the facilities and privileges are enjoyed by the business units in the name of the taxpayers.
FUNCTION AND OBJECTIVES OF AUDIT: The sales tax is paid on a self-assessment basis. Any declaration of the sales and purchases by the businessman is final, no government official can influence this course, to check its admissibility and correct determination and assessment.
The government has only one tool of check and balance which is the audit, through which it is ascertained whether the sales tax was properly assessed or not, proper records were maintained or not and the taxpayers were properly complying with the rules, regulation, provisions of the Sales Tax Act while making adjustments and assessment.
The objective of the audit is not to increase or decrease the revenue but to check the compliance of government rules, laws, procedures and provisions.
AUDIT RISK AREAS: Following are some areas on which the audit is generally focused.
-- Admissibility of input tax claimed at the time of purchases
-- Determination of tax liability
-- Short assessment/short payment
-- Proof of payment and receipts
-- Purchases from suspected units
-- High purchases and low supplies
-- Low value addition
-- Excess input tax claimed
-- Continuous carry-forward
-- Double refund claimed
-- Maintenance of proper record by the tax payers as per law
-- Proper compliance of rules, procedures, provisions and laws.
The auditors have not only detected millions of rupees but also recovered a substantial amount thereof before the adjudication process. I has also detected non-existing business units, issuing fake invoices with refund claimed and paid on those invoices. This was possible through physical verification.
SYSTEM OF AUDIT IN THE SALES TAX DEPARTMENT: The auditor is working under the strict supervision of the AC/DC, AIDC, the Collector and of the member audit. He is also required to make the record as per audit parameters under the law and prepare his report according to the model audit report (framed by the member audit).
The auditors' report is reviewed by the senior auditor and then is submitted to the AC/DC (Audit) for approval and necessary action. The concerned assistant collector examines all the angles of the report and finally approves the report.
The detected discrepancies are directly communicated to the taxpayer. They are given the chance to explain their position before the adjudication process, failing their reply or contest draft, the contravention report is submitted for adjudication process. All the audit work is carried out transparent and as per law.
PHYSICAL EXAMINATION: Physical examination of the premises is an important aspect in the audit, through which the auditor examines whether the registered person is claiming the input tax that relates to his nature of business and determines the working capacity potential production and supplies, the number of machinery's installed, and either output accordingly, and physically the stock verification, etc.
Difference of sales tax audit system between the D.R.R.A and the sales tax department.
-- D.R.A.A (Directorate of Revenue Receipts Audit) is a branch of the office of the Auditor
-- General of Pakistan, whose function is performance evaluation by all the wings of the Central
-- Board of Revenue of the revenue receipts.
In case of the sales tax audit, the system of audit is different from the department of sales tax. They audit 20 to 50 units in the day by seeing sales and purchase register and affixing the stamp.
They do not make any physical examination, any report, or make databases, feeding it into computers or contravention. They do not attend any hearings and so on.
Whereas, the auditors of sales are assigned three units per month. They have to conduct audit as per audit parameters. Makes physical examination (at their own cost) prepare the report as per the Model Audit report framed by the member audit (CBR Islamabad) they have to detect some things in the audit report.
Feed the database into the computers, sending information to the CBR Islamabad, makes contravention reports and attend hearings.
The taxpayers feel relaxed when they are audited by the audited officers of the D.R.R.A. as they do not require the maximum number of documents.
THE TAXPAYERS' COMPLAINTS AGAINST THE AUDITORS: The taxpayers will not leave any opportunity to cry out against the auditors, as there is only one person in the sales tax department who is duly authorised by his supervising officers, to go to the premises of the registered person to check the records and makes his findings and reports thereof. Main complaints of the taxpayers.
1 HARASSMENT: The auditor is not an independent body, but the employees of the Central Board Revenue Islamabad, posted at the respective collectorates.
They are working under the strict control of their supervisors, they have been authorised by their supervisors to perform the task of the audit of certain units under the law and within the limits of the audit parameters.
Requiring the record for the purpose of conducting the audit under the law is their duty. It is not harassment but the duty of the auditor. For this purpose it he has been appointed and paid.
2. VISIT WITHOUT PERMISSION: The auditors are blamed for visiting units without permission, which is totally wrong. Before starting an audit the taxpayers are intimated by a letter that their sales tax audit will be conducted on a particular date.
After that letter, another letter is dispatched along with the Comments Card in which they are intimated that such and such auditors have been nominated to conduct their audit, and if they have a problem during the course of the audit they can write their remarks and directly dispatch them to the controlling officer. Generally the taxpayers are intimated three month before the conduct of the audit.
DECISION FOR THE SUSPENSION OF AUDIT WORK: There are a large number of misunderstanding and misconceptions about the audit but its importance has never been studied and considered.
The sales tax department is nothing without the audit, because all the information passes through the audit, to the CBR Islamabad. The cases for adjudication, information for the enforcement of quick action and necessary recoveries, the new rules of the SROs and notifications are issued from time to time on the basis of the information provided through the audit.
The taxpayers are not crying out against the auditors, but are actually intending that there should not be any audit (check and balance) over them. They succeeded before when the audit parameters were framed in which more than 50% of the record was excluded from the audit and now they are trying to become 100% exempt from the audit, so that they can easily succeed in tax evasion and move their stocks without charging tax.
There are a large number of complaints against the Police the KESC and other government departments and its employees dealing with the public - but not one head of the departments has been suspended from his department nor action taken against those involved after inquiry and giving the right of a hearing.
All the officers and employees of the sales tax department are working day and night for the sake of revenue generation and achieving the target.
The CBR achieved the previous targets with the hardwork of these workers, and the honourable President of Pakistan had appreciated the meritorious services of the workers of the CBR. But none of the heads of the department tried to provide them with facilities, not appreciated their hardwork nor studied how the employees of the CBR (all wings) were working within limited salaries, with no rewards, promotion. On the contrary, they were continuously blamed.
There is an intensive need to improve the image of this government department by giving monetary incentives and other facilities and training's to the officers and the staff to improve their skills and capabilities, strengthening the system of checks and balance. To improve the image of the department not demoralise it before the public and media.
Constant policies should be made keeping the facts in mind, and after proper study. Such policies may be formulated which create no hostility between the tax papers and the tax officials.