The Central Board of Revenue (CBR) will restore sales tax field audit from February 2007 to conduct meaningful audit by professionally trained auditors based on automated selection criteria without involving manual interference.
Sources said on Tuesday that audit of corporate companies/units falling within the jurisdiction of Large Taxpayer Units (LTUs) at Karachi and Lahore would be conducted in the first phase.
The restoration of audit would also cover scrutiny of major refund cases for last three years. A series of test audits of largest taxpaying companies would be conducted utilising past returns with the object of capturing data needed for long-term planning as well.
In this connection, CBR Member, Audit, Abdur Razaq, has finalised the new audit strategy with the assistance of the international audit expert. The national audit plan would be systematically finalised taking into account evaluation of audit results in the coming days.
Sources said that full-scale audit would be conducted in a highly professional manner to check selected cases intelligently, which require co-operation of the taxpayers as well. Audit of specific cases is a key area of self-assessment regime, which could not be avoided by the business community.
The selection criteria are being chalked out after brainstorming sessions conducted by the US audit expert with field formations/auditors during the last few months. The expert frequently conducted interviews of auditors to figure out audit strength and identify parameters to evaluate their performance. The selection criteria are being devised taking into account previous systems, review of existing procedures, case study and future strategy based on 'best international practices'. It covers aspects like random, risk-based, industry profile and field survey of non-filers as well as of registered persons. The selection criteria would be backed by automation to eliminate any chances of discretion of the tax officials during the selection process.
The assessment of audit capacity and overall program have been completed through visits of audit officials/expert to LTUs and MTUs and interviews of the field auditors. Final selection criteria would be available to concerned officials in January, 2007, for resumption of audit from February. The automated audit-case selection and assignment systems based on risk-management concepts for direct/indirect taxes would be fully developed by target date.
Sources said that proper monitoring of audited cases is one of the key areas where CBR is focusing to keep a check on auditors as well as to eliminate any chances of collusion. The quality of audit to be conducted would be constantly monitored during the exercise. It has been decided that audits will be assigned to the auditors through a semi-automatic system to minimise human intervention.
Training of 1,000 auditors would be started from January 2007 to equip them with the latest auditing techniques based on new syllabus carefully finalised with the assistance of audit expert. The CBR is also reviewing the pay package for auditors to improve their working conditions. Sources said that World Bank review mission had also appreciated the performance of the audit expert and requested for early resumption of audit.
As a step towards restoration of meaningful audit, a national audit conference will be held from December 13 to 15 in Lahore to ensure participation/contribution of over 50 concerned officials during the process. Last week, a working group representing officials from CBR Fiscal Research and Statistics Wing, Pakistan Revenue Automation Limited (PRAL) and CBR Sales Tax/Income Wings identified potential audit case selection criteria in preparation of a full audit program.
Therefore, a systematic plan has been followed to re-start audit of income tax and sales taxpayers. It is a serious effort to conduct productive audit with the help of latest techniques with proper monitoring of audited cases.
Sources said that the audit selection criteria would be constantly improved over a period of time, keeping in view experiences and practical job difficulties faced by auditors.
The expert from US has also suggested interaction with various sources for proper implementation of the audit plan. This included political leaders, trade associations, tax practitioners, industry groups, community meetings and use of returns/brochures and publications.
Sources said that in support of the CBR reforms strategy to strengthen the overall audit program, a working session would be convened to formulate a policy in preparation of reactivation of full audit program.
The international audit consultant has evaluated audit activities in the area of both sales and income taxes. This review process has uncovered seven key areas, which are being addressed prior to reactivation of a full audit program. The areas included audit workforce management; community outreach/marketing efforts; audit case selection; use of third-party data; effective auditing techniques; assessing quality of completed audits and performance measurement reports.
Sources said that the expert had also contributed in chalking out the training program of auditors. The US expert has also given recommendations for the strengthening of the tax audit program. There has been focus on audit performance measures, improving compliance and establishment of auditing techniques keeping in view experience of OECD models.
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