The Federal Board of Revenue (FBR) has laid down 12 risk-parameters for selection of sales tax and federal excise duty cases for audit for tax year 2017. The FBR Audit Policy-2018 released by the FBR here on Thursday revealed that the FBR has conducted computer ballot on parametric basis for selection of 2.3 percent of cases for audit out of the total filers after exclusions in income tax for tax year 2017. For sales tax and federal excise duty (FED), the FBR selected 2.5 percent and 7.7 percent cases for audit respectively out of the total filers after exclusions for tax periods corresponding to accounting period adopted for the purpose of return of income for TY 2017 under the Income Tax Ordinance 2001.
Out of 477,374 income tax cases, the FBR has selected 10,982 cases for audit (2.3 percent). Last year, 9.5 percent income tax cases were selected for audit. Therefore, income tax cases selected for audit has been reduced form last year's 9.5 percent to 2.3 percent.
Out of total 124,004 sales tax cases, the FBR has picked 3,126 cases for audit (2.5 percent). Last year, 7.5 percent sales tax cases were selected for audit. The percentage of sales tax cases selected for audit has been reduced from 7.5 percent to 2.5 percent this year.
Out of total 725 federal excise duty cases, the FBR has selected 56 cases for audit (8.3 percent). Last year, 8.6 percent Federal Excise cases were selected for audit. Under Audit Policy 2018, the FBR has selected an overall 2.3 percent of total cases available after exclusions for Audit in Income tax, sales tax, and FED for tax year 2017.
The FBR said that advanced data analytics have been used to design parameters to make sure that only non-compliant tax payers are selected. As a result, the FBR has selected a small number of high-risk cases for audit compared to previous years. This year only 2.3 percent of total cases available for audit for income tax, sales tax, and the FED have been selected through ballot compared with 7.5 percent cases selected in last year's ballot. Furthermore, the FBR has decided that taxpayers who have been audited in Income Tax in any of the preceding three Tax Years i.e. 2016, 15, and 14 and salaried individuals would be excluded from this year's Ballot. Similarly, taxpayers who have been selected for audit under Audit Policy 2017 for sales tax and FED have been excluded from this year's ballot.
Sales tax risk parameters have been determined by the board for selection of cases for audit under clause (i) of the sub-rule (2) of rule 44A of the Sales Tax Rules, 2006: Sales tax parameters included decline in value of supplies as compared to corresponding months of previous year, consistent increase in input tax/output tax ratio over corresponding months of previous three years, decrease in taxable supplies to total supplies ratio as compared to corresponding months of previous year, difference in declared value of sales as compared to declared turnover in Income Tax Return, persons declaring reduced rate sales, manufactures showing inadequate value addition, declared sales are less than imports, decrease in payment of tax as compared to corresponding months of previous year, increase in refund claimed as compared to corresponding months of previous year, unclaimed purchase to declared purchases ratio is high, utilities to sales ratio is high and discrepancy identified by the Computerized Risk-based Evaluation of Sales Tax (CREST).
According to the audit policy, the FBR said that the risk parameters for income tax cases would not be disclosed in accordance with section214 C(1A) of Income Tax Ordinance,2001.
The FBR has determined 12 risk parameters determined by the Board for selection of Federal Excise cases for audit under clause (i) of sub-rule (2) of rule 73A of the Federal Excise Rules, 2005. Federal Excise Parameters included decrease in payment as compared to corresponding months of previous year, decline in value of supplies as compared to corresponding months of previous year, consistent increase in input tax/output tax ratio over corresponding months of previous three years, decrease in taxable supplies to total supplies ratio as compared to corresponding months of previous year, difference in declared value of sales with declared turnover in Income Tax Return, persons declaring reduced rate sales, manufactures showing in adequate value addition, declared sales are less than imports, decrease in payment as compared to corresponding months of previous year, increase in refund claimed as compared to corresponding months of previous year, unclaimed purchase to declared purchases ratio is high and utilities to sales ratio is high, audit parameters added.
Under the Audit Policy 2018, the following exclusions have been identified and approved by the Board under relevant rules where selection for income tax audit by the Board is not required:
The exclusions included all cases already selected for audit by the Commissioners Inland Revenue or Director I&I (IR) under section 177 of the Income Tax Ordinance for any of the preceding three Tax Years i.e 2014, 2015, 2016, all cases already selected for audit under section 214D of the Income Tax Ordinance, 2001, for any of the preceding three Tax Years i.e 2014, 2015, 2016 and all cases where income chargeable to tax under the head salary exceeds 50 percent of taxable income, except cases having business income. Directors of companies do not qualify for this exclusion and all cases where entire income is covered under Final Tax Regime (FTR).
Sales Tax exclusions included all cases already selected under section 25 and 38 of Sales Tax Act, 1990 by the Commissioner Inland Revenue or Director I&I (IR) for tax periods corresponding to the accounting period adopted for the purpose of return of income under the Income Tax Ordinance, 2001 for tax year 2016. Provided that where only a part of the said accounting period had been audited already, the relevant authority may select the remaining period for audit, all cases already selected for audit under section 72B through computer ballot held under Taxpayers' Audit Policy,2017, all cases of Steel Melters and Steel Re-rollers who are paying sales tax under the Sales Tax Special Procedure Rules, 2007 and Federal, Provincial and Local Government Departments.
Federal Excise exclusions: All cases already selected under section 46 of the Federal Excise Act, 2005 by the Commissioner Inland Revenue or Director I&I (IR) for tax periods corresponding to the accounting period adopted for the purpose of return of income under the Income Tax Ordinance,2001 for tax year 2016Provided that where only a part of the said accounting period had been audited already, the relevant authority may select the remaining period for audit, all cases already selected for audit under section 42B through computer ballot held under Taxpayers' Audit Policy, 2017.
And regain the authority for the purpose of audit under different provisions of the law.
In line with the earlier practice, this year for Audit Policy 2018, the FBR would do a parametric selection. Data analytics would be run on available population based upon identified risk parameters. This strategy would ensure that only non-compliant taxpayers are selected for audit and minimizes the chance of selection of compliant tax payers, preventing squandering of scarce human resource of the department on cases where there is no potential, the FBR new audit policy added.
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