The Federal Board of Revenue (FBR) has approached the Auditor General of Pakistan (AG) for implementation of a Peshawar High Court judgement restraining the external auditors from carrying out inspection/audit of tax records of private companies or private registered units with the sales tax department.
Sources told Business Recorder on Friday that the decision of the Peshawar High Court on the case regarding powers of the Directorate of Revenue Receipt Audit (DRRA) to conduct audit of taxpayers has been dispatched to the AG office for necessary action.
The Peshawar High Court has declared that the auditors of the DRRA could not be recognised as sales tax officials for accessing books of accounts and records of private companies and private registered persons. The FBR has also taken up the matter with the senior officials of the AG office to ensure implementation of the recent judgment of the court pertaining to the jurisdiction of the DRRA auditors, sources added.
When contacted, tax experts said that the DRRA, a subsidiary of AG, is not legally empowered to directly access taxpayers' record for carrying out sales tax/federal excise audit. The AG is only legally empowered to carry out audit of government organisations and corporations under provisions of section 169 and section 169A of the Constitution of Pakistan.
Referring to section 169 of the Constitution, experts said that it is related to the functions and powers of AG office. It 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 Act of Parliament or Order of the President.
Analyst said that it has been correctly assumed that the auditors of AG office are not legally empowered to conduct sales tax audit of taxpayers. The auditors of AG office can check government revenue involved in government organisations and corporations. The AG office can check FBR performance but cannot directly access the taxpayers' record.
According to experts, FBR might face serious problem in smooth implementation of the audit resumption plan due to parallel sketchy system of DRRA of conducting taxpayer's audit. The auditors of the DRRA are not legally empowered to conduct statutory audit of registered taxpayers.
Similarly, they cannot demand tax record from the taxpayers. Sources said that 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 not. 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, and is not defined as an officer of sales tax. The staff of DRRA is non-existent authority under the Sales Tax Act, 1990. A non-existent authority cannot access the books of accounts and other sales tax record under section 25 read with section 37 and section 38 of the Sales Tax Act, 1990 either directly or indirectly. This is the statutory position till the law is amended up to date.
They said that under section 30 of the Sales Tax Act, 1990, the only authority which can appoint an officer of sales tax for the purpose of the Act, 1990 is FBR. No fiscal statute (including Sales Tax Act, 1990) allows the AG to conduct the audit of a private party or a taxpayer.
Therefore, the access to the record of the registered person, preparation of audit observation and initiating legal proceedings is an arbitrary exercise. Legally, 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, the experts added.
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