ISLAMABAD: The government is likely to introduce an electronic-assessment scheme in the budget (2023-24) to conduct income tax assessments of taxpayers based on automated desk-audit after applying risk-based parameters.
The Reforms & Revenue Mobilisation Commission (RRMC) has recommended an electronic-assessment scheme that will be faceless, jurisdiction-less, nameless, and paperless.
The concept of e-assessment is not new; rather it is already being used in countries such as Singapore, the United Kingdom, Brazil, Mexico, Korea, Japan, Germany, India etc. As of now, returns of income are required to be filed online on IRIS web portal of the Federal Board of Revenue (FBR); however, the process of assessment is still manual. The committee proposes to take this process further, the RRMC said.
Political will only way to boost tax base
Following are the steps that need to be taken for this purpose/the suggested process flow:
(I); It has been observed that out of the total returns of income filed for Tax Year 2022, only an insignificant percentage of the income tax returns were filed on the statutory due date. First and the foremost, the past practice of allowing a general extension of time for filing of annual returns of income should be done away with.
Secondly, all NTN holders who have not filed their returns of income on the due dates should be issued notices automatically, through IRIS, requiring them to file the same by a specified date failing which, penal proceedings be initiated against them. (ii); It is suggested that the process of initial desk audit/amendment and selection for audit should be automated and made faceless/paperless/jurisdiction less/nameless. As soon as the return of income is submitted online, an Artificial Intelligence (AI) based tool should scan the return for sense check and for possible errors, generate a report on such flaws and issue the same to the taxpayer.
(iii); The criteria for selection of returns for this automated desk-audit is suggested to be risk-based. For this purpose, a risk-based AI tool will need to be developed and implemented. The process would be that firstly, returns of all taxpayers will be masked i.e. the identity of the taxpayers (such as NTN and other details) will be hidden. Certain risk-based parameters would be then defined in the FBR’s AI system whereby the cases of taxpayers be selected by such IT tools, for audit/amendment if the return of income of the said taxpayer meets any of the risk criterion. The scrutiny of the return would, in
this case, be confined to the parameters/exceptions on the basis of which, the return was selected by the system.
(iv); The notice would be automatically issued by the system highlighting the discrepancies/flaws in the returns of income. Moreover, the same will be served via electronic means, i.e. on IRIS. The notice would mention the basis on which the return was selected for proceedings and would also mention the due date for response submission.
(v); An initial response would be submitted by the taxpayer online in response to the notice issued. At this stage, the assessing officer would not be known, neither would any meeting be initially held between the assessing officer and the taxpayer.
(vi); An independent e-assessment centre/system will need to be established which would assign the selected cases to different assessment units/zones on the basis of cross-jurisdictional assignment, through an automated allocation system, based on artificial intelligence and machine learning.
(vii); The assessing officer falling in the particular assessment unit and zone to which the case has been assigned, will then request through the system for further information or documents/evidence, if required. The Centre/System will issue notices on the request of the assessing officer, till the time the required information has been submitted by the taxpayer. This information will be received by the Centre/System and will be provided to the assessing officer. The Centre will ensure that anonymity is maintained during the entire process.
(viii); Based upon submission of the information, the officer will decide if any or all of the issues can be dropped. The officer will prepare a report based on his findings on all the issues raised in the initial automated notice and will document the basis of accepting/rejecting the explanation of the taxpayer and reasons thereof.
(ix); The report of the officer, along with the initial notice and replies will then be sent to another officer in a separate zone who will examine the case and will issue a Show Cause Notice (SCN) (if required). This assignment to the other officer would also be technology-based. Both the officers will also not be aware of each other.
(x); Response to the SCNs will be submitted by the taxpayer online which will be examined by the second officer. Once all information and documents have been submitted by the taxpayer and examined by the assessing officer, the return will be unmasked and one opportunity for personal hearing would be provided. It is proposed that the opportunity be provided via video telephony only, to be attended by the assessing officer from designated meeting rooms in tax offices, and without involving any physical interface. Moreover, the hearing session should be recorded, and recording should be maintained as a part of FBR’s records.
After passing of the order, the order can be challenged before the CIRA. Although appeals are filed online as of now, however, the Committee proposes that the interface between the CIR(A) and the taxpayer be eliminated. The process should be faceless and similarly, technology be used for allocation of an appeal to a particular CIR(A).
This is also recommended that the concept of E-assessment should be introduced in Customs Act 1969, as well, wherein the Goods Declarations (GDs) should be masked and the custom authorities would appraise the GDs without identification. Furthermore,
a facility should be equipped with high tech cameras and the latest scanning technology.
The said mechanism will ensure an increase in transparency and efficiency of the revenue authorities and will thus result in improvement of quality of assessment and development of trust of taxpayers; reduce human interface; consistent view on various issues, and consistency of proceedings; avoidance of unwanted and prolonged litigation; ease of compliance of taxpayers as the proceedings will be done electronically and physical presence is not required; saving of time, money, resources, as the taxpayer would not be required to commute, travel etc; chances of harassment will be minimal and proof of the entire proceedings in digital form, ease of quality control and retrieval of information, the RRMC recommendation added.
Copyright Business Recorder, 2023