The Federal Board of Revenue (FBR) has barred the FBR Taxpayer's Audit Wing from issuance of national audit plan to the field formations for adopting a new policy under which Central Audit Task Force would be set up for monitoring of audit cases to ensure risk-based data analysis using third-party information before issuing audit notices to the taxpayers.
Sources told Business Recorder here on Saturday that the FBR wants to deviate from the traditional policy of issuing national audit plan to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to adopt a new approach of meaningful audit without causing harassment to the taxpayers. The deviation from the traditional approach of issuing notices to the taxpayers on the basis of annual audit plan has been made to conduct audit of only high-risk cases involved in evasion, concealment or under-reporting of taxes.
The annual audit plan has been finalised by the FBR Taxpayer's Audit Wing, which has been stopped from sending to the field formations to avoid any possible misuse of the audit guidelines by the field office. On the request of the FBR Member Inland Revenue, the FBR Taxpayer's Audit Wing has yet not dispatched the new audit plan.
The FBR's audit plan, sent to the field formations every year has been widely misused by the tax officials, who use discretionary powers to issue audit notices to the taxpayers without conducting any analysis, research, data verification and risk-based assessment analysis. Traditionally, field offices compile list of taxpayers to be audited without applying any risk-based criteria and issue notices under the garb of the national audit plan.
In the past, such plans have failed to achieve the desired results due to discretionary powers exercised by the concerned officials in the field formations. The tax officials randomly select cases for audit without conducting desk-audit on the basis of information available with the department which resulted in harassment to the taxpayers. This year, the FBR will not repeat the past mistakes as business and trade have lodged serious complaints against the notices served on them.
Contrary to this, the field formations have to initially conduct desk-audit of the available tax record and in case of major discrepancy the tax department can give permission for conducting audit. However, audit does not mean to select anyone for audit without ample evidence of wrong going on behalf of the taxpayers. In this regard, any risk-based parameters or criteria have not been followed which only resulted in harassment among the business community.
The FBR has also asked the field formations to show the result of the audits being conducted on the basis of national audit plans issued in the past years. The field formations have to submit some cases of audit conducted in the past and methodology applied for detection of unpaid amount of tax and recovery of the same.
The result of the past cases where notices were issued for conducting audit would guide the FBR Inland Revenue Wing to ascertain the authenticity of the audit conducted on the basis of annual audit plan. If only miner changes have been made in the assessments of the taxes of selected cases during audit, then the results of the annual audit plans, already applicable in the field formations, are obvious. There is no use of such annual audit plan which would only create harassment among the registered persons. While analysing the results and quality of audit conducted in the past, the FBR will decide about the fate of the new audit plan.
Sources further said that the FBR Member Inland Revenue during his visit to the field formations received complaints about wrongly issued audit notices to the registered taxpayers. Tax bar associations, chambers and federations have submitted such complaints to the FBR Member IR, reflecting misuse of the audit plan in the field formations.
On the recommendation of the World Bank, the FBR is planning to set up a Central Audit Task Force for monitoring of the cases selected for audit. The audit would be conducted through a centralised system equipped with third-party data and information from external sources. The FBR will induct 5-6 experienced officials having good integrity in the Central Audit Task Force, which would operate the Board's level.
These Grade 19-20 officials of the Central Audit Task Force would monitor and supervise the whole exercise to ensure audit of registered persons in an effective manner without causing harassment. In this regard, the FBR is also taking input of the Tax Administration Advisors of the United States Agency for International Development (USAID). The Competitiveness Support Fund (CSF) Advisors have given excellent input to the FBR for implementation of an effective audit strategy.
If FBR intended to continue with the implementation of the national audit plan, then the Board would make a pragmatic shift in the audit policy. The audit plan must ensure that the taxpayers should not face any harassment after receiving audit notices from the tax department. This is only possible when the FBR would establish a Central Audit Task Force for audit under a centralised system.
The unnecessary botheration to the taxpayers must be checked through a new audit approach instead of repeatedly sending annual audit plan to the fields, causing inconvenience to the taxpayers. Without doing homework, the issuance of audit notices to the field formations only creates harassment among the business and trade.
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