The Federal Board of Revenue (FBR) will pick companies, business establishments and other corporate entities for income tax audit which have persistently shown decrease in net profit during last three years and have been continuously declaring decline in income for the last three years under the risk-based audit criteria laid down in National Audit Plan 2011-12.
Sources told Business Recorder here on Sunday that companies, which have claimed income tax refund of Rs 2 million, or above, would also be selected for income tax audit. If sales tax refund claim is 5 percent more than previous year, in non-companies cases, the tax department would select such cases for sales tax audit. Companies would also be selected for audit where decrease in proportion of taxable supplies to total supplies in last three years was by 10 percent in each year and there was persistent decrease in output tax/input tax ratio over last three years. Within the category of non-companies cases, if the import purchase in sales tax return differs from value of import in customs data by 5 percent, these cases would be selected for sales tax audit. Similarly, audit selection criteria also include cases where total sales declared in sales tax return differs from total sales declared in income tax return by 10 percent.
Sources said that the National Audit Plan 2011-12 has issued detailed risk-based audit criteria for selection of cases for income tax and sales tax audit of companies and non-companies cases during 2011-12. The FBR has issued four different types of risk-based audit criteria for companies cases (income tax audit), companies cases (sales tax audit), non-companies cases (income tax audit) and non-companies cases (sales tax audit) for 2011-12. The cases for audits shall mainly be selected by the commissioners of Large Taxpayer units and Regional Tax Offices based on the risk factors developed by FBR.
Following are the risk-based audit criteria for selection of cases for audit:
1. Company Cases (Income Tax Audit): Imports in Customs differ from declared imports in income tax; gross profit to Sales Ratio (Income Tax) differs with Sector ratio (Cases where gross profit growth is less by 2 percentile points as compared to Sectoral growth rate); net profit to Sales (I/Tax) declared ratio differs with sector ratio (Cases where net profit growth is less by 2 percentile points as compared to Sectoral growth rate); decline in Sales (I/Tax)) is more than 10 percent as of last year; claim of refund of Rs.2 million or above in Income Tax; persistent decrease in gross profit over last three years; persistent decrease in net profit over last three years and continuously declaring decline in income for the last three years.
2. Company Cases (Sales Tax Audit):- Imports in customs differ from declared Imports in Sales Tax; output tax is different from the prevailing sales tax rates of Taxable Supplies; input tax is different from the prevailing sales tax rates of Taxable Purchases; total output tax minus Input Tax differs from Net Payment by 5 percent; output tax/Input tax Ratio differs with Sector''s Output tax/Input tax Ratio by 5 percentile points'' decline in Supplies (Sales Tax) is more than 10 percent as of last year; claim of overruled amount of refund under STARR / ERS related checks is more than 50 percent of the claim or Rs 2 million or above - overruling pertaining to following STARR /Expeditious Refund System (ERS) related checks ie Bill of Entry, Invoices, Returns, Shipping Bills, Supplier Status; decrease in proportion of taxable supplies to total supplies in last three years by 10 percent in each year and persistent decrease in output tax / input tax ratio over last three years.
Following are the risk-based audit criteria for selection of cases for audit:
3. Non-Company Cases (Income Tax Audit):- Opening balance not matching with closing balance of previous year; cost of sales is more than 80 percent of total sales; cost of sales is less than 60 percent of total sales; net profit to sales ratio differs from sector ratio by 10 percent; percentage of expense to gross profit differs from sector ratio by 10 percent; gross profit to total sales ratio differs from sector ratio by 10 percent; total sales declared in Income tax returns differ from total sales declared in sales tax return by 10 percent; continuously declaring loss for the last two years; continuously declaring decline in income for the last two years.
4. Non-Company Cases (Sales Tax Audit):- Opening balance not matching with closing balance of previous year; total sales declared in sales tax return differs from total sales declared in Income tax return by 10 percent; total supplies are less than previous year by 10 percent; output tax is less than the previous year by 5 percent; input tax is more than the previous year by 5 percent; Output tax is different from standard rate of taxable supplies; input tax is different from standard rate of taxable purchases; output tax minus input tax differs from net payment by 5 percent; percentage of input/output ratio differs with sector''s ratio by 10 percent Refund claim is 5 percent more than previous year; export sales in Sales Tax Return differ from value of export in customs data by 5 percent; import purchase in Sales Tax Return differs from value of import in customs data by 5 percent.