ISLAMABAD: To create a national impact of audit as deterrence, the Federal Board of Revenue (FBR) has decided to select over 50,000 income tax cases for third-party audit of companies, Association of Persons (AOPs), and individuals for the Tax Year 2019.

Sources told Business Recorder Monday that the decision has been taken during the last meeting of the FBR on third-party audit policy. It has been decided that the FBR will select cases for audit through the Risk-Based Audit Management System (RAMS). Board-in-Council of the FBR proposed selection of total 22,458 income tax audit cases for third-party audit.

However, Finance Minister Shaukat Tarin had directed the FBR that in order to create national impact and to curb tax evasion, it is imperative that 50,249 audit cases of income tax for companies, association of persons, and individuals be selected for third-party audit.

According to the sources, it has also been decided that the process of the third-party auditors would be carried out under the Income Tax Ordinance 2001 as per the PPRA Rules. Therefore, it has been agreed that the procurement of services of third-party auditors would be done as per Public Procurement Rules, 2004.

Third-party tax audit procedure nearly finalized

Under the Income Tax Ordinance 2001, the board may appoint a firm of chartered accountants as defined under the Chartered Accountants Ordinance, 1961or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 to conduct an audit of the income tax affairs of any person or classes of persons, and the scope of such audit shall be as determined by the board or the commissioner on a case to case basis.

It has also been decided that the third-party auditors would be bound to abide by the confidentiality provision to ensure confidentiality of the data of the taxpayer selected for audit.

The confidentiality under section 216(7) of the Income Tax Ordinance 2001 would be ensured by the chartered accountant firms on the stamp papers as defined under the Chartered Accountant Ordinance 1961 or a firm of cost and management accountants as defined under the Cost and Management Accountants Act 1966. In order to ensure quality of audits, the third-party auditors would be divided into three different categories as per taxpayers declared turnover in their financial statements.

The FBR has requested the Finance Division for providing technical supplementary grant on total expenditure incurred on outstanding third-party audit amounting approximately to Rs7,501 million.

Copyright Business Recorder, 2021