The Directorate of Revenue Receipt Audit (DRRA), a subordinate of Auditor General of Pakistan (AG), is not legally empowered to directly access taxpayers record for carrying out sales tax/federal excise audit.
Interpreting a ruling of the Law and Justice Division, senior tax officials said on Sunday that the AG is only legally empowered to carryout audit of government organisations and corporations under sections 169 and 169A of the Constitution of Pakistan.
Sources said that the Federal Board of Revenue (FBR) had approached the Ministry of Law and Justice to obtain a legal interpretation on the powers and jurisdiction of the DRRA of AG office to access taxpayers record for carrying out sales tax audit of companies.
Now the ruling has been received which clarify that the auditors can only conduct audit under the law ie Constitution of Pakistan. This law does not permit the AG to directly access taxpayers record for audit purposes.
Referring to section 169 of the Constitution, sources said that it relates to the functions and powers of AG office. The office can perform functions in relation to accounts of the federation and provinces and accounts of any authority or body established by the federation/province under an Act of Parliament or Order of the President.
Sources said it has been correctly assumed that the auditors are not legally empowered to conduct sales tax audit of taxpayers. The auditors of AG office can check the government revenue involved in government organizations and corporations. The AG office can check the FBR performance, but it cannot directly access the taxpayers record.
Sources opined that the ruling has been declared in favour of the FBR. The ruling of Ministry of Law has also removed confusion on the limitations of DRRA's auditors, who unnecessarily intervene in the board's jurisdiction for audit purposes.
Sources said that section 12 of the AG Act also restricts its auditors to audit the expenditures and receipts of government organisations whether correct assessment has been made for deducting tax.
The tax audit is a specialised area and when an FBR auditor raises demand for income tax or order-in-original in case of sales tax/excise, the taxpayers have four legal forums like collector (appeals) to challenge the findings of the auditors. Thus, only FBRs auditors are permitted to scrutinise taxpayers' records.
Details revealed that some of units selected for sales tax audit have already been thoroughly audited by the external auditors of the DRRA. In these cases, taxpayers are not ready to co-operate with the board's auditors in carrying out two audits in a single financial year. The FBR's exercise of audit resumption is facing serious problems due to illegal scrutiny of taxpayers records by the DRRA's auditors.
Sources said that some of the corporate companies selected for field audit (2005-2006) have argued that DRRA has completed audit and issued certificates to them. The companies opined that the FBR is not legally empowered to conduct second audit during the same year. Under section 25 of the Sales Tax Act, 1990, the sales tax officers, on the basis of the record, may, once in a year, conduct audit.
Referring to section 25, units contested that if a company is selected for audit once a year, it could not again be picked for another audit during the same period.
Sources said that certain Regional Tax Offices (RTOs) have also sought clarification from the authorities concerned about the audit of units, who were earlier cleared by the DRRA. During suspension of FBR field audit, the DRRA audit remained in vogue and large number of accounts of taxpayers have been audited since 2004.
According to sources, the audits conducted by the DRRA are illegal without any legal grounds. The FBR has received representations from few top companies that the DRRA had completed their audit in 2005-06 and the FBR cannot conduct audit twice during the same period. However, the viewpoint of these companies is not correct, as DRRA is not the competent department to examine sales taxpayer's records.
Sources said the FBR is the only authority to conduct such audit of the registered units. The DRRA could check the sales tax working to verify whether refunds were correctly issued or other such matters. They have no powers to operate as sales tax or federal excise officials for checking of taxpayer's record on their own.
Sources said that the audit team is the staff of DRRA, which is a branch of Auditor General of Pakistan and is not defined as an officer of sales tax. The staff of DRRA is non-existent authority under the Sales Tax Act, 1990.
Legally, the staff of DRRA does not enjoy any power to summon presence or to inspect or directly or indirectly require producing the taxpayer's books of account and sales tax record for inspection.
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