ISLAMABAD: The Federal Board of Revenue (FBR) has redefined the sales tax audit procedure including selection of cases and mode and manner of audit completion under the proposed law.
The FBR has proposed changes in section 25 (Audit of sales tax affairs) of the Sales Tax Act 1990 under the simplification and harmonisation of Inland Revenue’s Tax Statutes.
According to the details, Arshad Shehzad, a renowned tax expert informed existing selection of the audit is subject to specific reasons and mindful queries upon review of the record called upon by the Commissioner Concerned in terms of sections 25(1) and 25(2) of the Sales Tax Act, 1990.
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The selection process of the audit remained under serious debate and litigation. The procedure has been well spelt out by the High Court in different judgments. The Sindh High Court (SHC) in the case of Wazir Ali Industries, explaining the history of the amendment brought in audit provisions states originally when Section 25 was introduced in Sales Tax Act, 1990 it carried the phrase “as and when required” but it is just a solitary provision. Although a minor amendment was carried out in the year 1999, a substantive change was brought in the year 2003 and then underwent many consequential amendments in the years, 2005, 2008, 2010, 2013, 2015, 2018, 2019, and 2020. The amended provisions which came in the year 2003. It is this amendment when for the first time subsection (2) to Section 25 was introduced in terms whereof officer of the sales tax, on the basis of record obtained under subsection (1) may once in a year required to conduct an audit. In 2010 the basic structure of Section 25(1) and (2) was again reframed when Commissioner was empowered to call records and an officer of Inland Revenue may then be required to be authorised for the purpose of audit. In 2018, a third proviso was added for conducting the audit once in every three years. The proviso, however, was again deleted in 2019’s Finance Act.
All the audit notices issued in the recent past without following the due process of law as explained in the twin provisions of section 25(1) and 25(2) or without extending reasons were held illegal by the different High Courts.
The board seems taking cognisance of the ratio held in the number of recently passed judgments seeking amendments in the proposed provision for the audit process.
The time limit for conducting audit is also proposed to be extended up-till six years, without putting any specific restriction for conducting an audit more than once. In the past, the government has placed restrictions on conducting audits once in three years through a proviso in 2018. Likewise, last year provision for audit once in a four year was induced under ITO 2001.
In the presence of electronic compliance by the taxpayers including the filing of sales tax returns, digital reporting of import and export data, electronic reporting of local purchase and sales, production data, tax credit carry forward and its consumption report and stock position by the refund claimants, extended time limitation for conducting audit within six years and omitting provisions for protecting taxpayers from multiple audits seems unnecessary and unjustified.
The proposed amendment provides more discretionary powers to the tax officers and may lead to harassment instead of a step towards simplification, Shehzad added.
Copyright Business Recorder, 2023
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