The Federal Board of Revenue (FBR) has set up the Taxpayer's Audit Monitoring System (TPAS) at the reformed units for automation of taxpayers audit and monitoring of auditors transactions/activities during composite audit of sales tax and income tax. According to an FBR report on composite audit, the tax system in Pakistan is operating mainly on self-assessment basis.
There is no physical control on the persons (including industrial concerns) registered under different taxes, except under special circumstances. The system promotes voluntary - compliance, self-documentation, self-assessment, and self-policing. Audit is the only tool having deterrence effect and instrument of control through which compliance level of registered persons is monitored ie whereby the government checks whether a registered person/taxpayer has correctly determined his tax liability, deposited due amount of tax to the government and is making adjustments of those input tax to which he is legally entitled.
During the initial phase of the FBR reform process, it adopted a system of universal self-assessment (similar to that already operating in most of the developed countries) for determining income and sales tax liabilities. However, it was realised that no universal self-assessment system will be effective without an effective National Audit Plan.
For this purpose the services of an International Audit Consultant were hired who prepared a National Audit Plan/Manual for FBR, which outlines the broad based guidelines for the audit of taxpayers. In the light of National Audit Plan, the FBR in the second phase of its reform expanding its activities to focus on structured approach of audit of large and medium size taxpayers during 2009-10, by utilising departmental and out- sourced audit resources.
In pursuance to the decision made in the second meeting of the Business Persons Council, computer based random balloting was held in the presence of representatives of trade, industry, Tax Bar Associations and media on December 11, 2009 to select units/persons for audit of domestic taxes for the year 2008. The purpose of this automated selection of taxpayers was to ensure complete transparency and to avoid any possibility of discrimination.
The Taxpayer's Audit Monitoring System (TPAS) for automation of Taxpayers Audit and monitoring Auditors transactions/activities has been developed with the help of Pakistan Revenue Automation Limited (PRAL) during the audits of Income Tax & Sales Tax and is being installed at fielded formations. The system will not only ensure the quality of audit reports but will also minimise the time taken in completion of audits.
The Chief Commissioners of all LTUs/RTOs shall play a key role by assigning responsibility to the relevant audit managers and their staff for smooth functioning of audit. They shall ensure the quality of audits being conducted in their respective jurisdiction through formations of quality review Committee in their unit/office. The Committee will review audit reports on test basis and report its findings to the concerned commissioners for further instructions.