The audit of taxpayers has identified non-compliance in five major areas by registered units/companies operating under the Universal Self-Assessment System (USAS).
A presentation of Federal Board of Revenue (FBR) Member Audit Abdur Razzaq showed that non-compliance of taxpayers stems from ignorance of law; poor record keeping; different legal interpretation; unexpected personal emergencies and cash-flow problems. However, some of the non-compliance is deliberate and willful even to the extent of criminal tax evasion. It is vital that all types of non-compliance is identified and addressed by FBR in an appropriate manner.
The presentation has been made to the tax authorities to identify areas which need improvement in audit system to be undertaken with the help of foreign audit expert from USA.
According to the paper, cases are selected for audit on the basis of financial/tax performance showing substantial variance from the usual industry pattern; unexplained losses or consistent payment of little or no taxes; computer based random sampling and inconsistent data reflected in internal and external data sources. Common compliance problems included failure to maintain proper books and records; understatement of income because of mistakes in recording income earned; failure to account for all sale invoices and omission of trading stock taken for private use; overstatement of purchases and other expenses due to incorrect claims for purchases and expenses; double counting or estimation of purchases and expenses and inadequate supporting source documents.
There are cases where taxpayers failed to ascertain actual closing stock value thus understating the income. There are cases where omissions were made to report taxable income from other sources.
Member Audit highlighted that FBR has adopted unconditional Universal Self-Assessment to facilitate taxpayers to determine their own tax liability. However, this policy will only be effective if taxpayers declare their incomes and tax liability honestly.