Audit failure leads to decline in income tax demand

The incomplete audit by chartered accountant firms has resulted in sharp decline in income tax demand created against the registered companies.
The FBR report on Collection on Demand (COD) issued on Thursday revealed that although COD has become a minor component over the years after the shift towards self assessment system, it will remain of paramount importance as it is the only component which reflects the departmental efforts to recover arrears payments and raise current demand by analysing the documents (returns and annexes) filed by the taxpayers.
The share of COD, in total income tax collection has declined from 13.2 percent during first half of 09-10 to 8.2 percent during first half of 2010-11. Within the COD, the shares of current demand and arrears demand has been 58.7 percent and 41.3 percent during July-December, 2010-11 as against 53 percent and 47 percent respectively in the previous year. The collection from current demand reached Rs 12.3 billion in the first half of 2010-11 against Rs 15.7 billion in first half of 2009-10, whereas under the head of arrears demand Rs 8.6 billion during first half of 2010-11 against Rs 14 billion collected last year.
Since the audit function is outsourced to chartered accountants and the audit has not been completed in the first half of the year, therefore, there is negative growth in the demand creation. However, it is expected that the audit will be completed in the second half and the stuck up amount will be recovered accordingly, the FBR added.