The Federal Board of Revenue (FBR) has made a fundamental policy decision not to use computerised random balloting to pick cases for audit, instead relying on field audits chosen by the Commissioner of Inland Revenue.
FBR’s Policy
According to source, the FBR’s policy of randomly selecting cases for audit from among all taxpayers has not been successful in the past.
Computer Random Ballot
Irrelevant cases were chosen with legitimate instances in the computer random ballot. Cases that were not obliged to be audited are sometimes chosen. This also led in legal action.
The field Commissioners (Inland Revenue) have day-to-day expertise dealing with taxpayers and can choose cases for audit as appropriate.
Inland Revenue
The Commissioners have the authority to choose instances for audit in field formations.
Field formations would undertake the audit if there were substantial anomalies in the records.
The requirements of sections 177 and 214C of the Finance Act 2022 do not apply to a person whose income tax affairs have been audited in any of the preceding four tax years.
It was also stated that the Commissioner may select a person for audit under section 177 of the Income Tax Ordinance 2001 with the agreement of the Board.
Under sections 214C
Under sections 214C of the Income Tax Ordinance, 72B of the Sales Tax Act, and 42B of the Federal Excise Act, the FBR did not choose tax cases for electronic audit for 2022-23 and 2021-22.
The FBR chose 14,154 cases of income tax, sales tax, and FED for audit through electronic balloting in April 2019 for tax year 2018.
The FBR had selected 477,374 income tax payers for balloting, out of which 10,982 or 2.3 percent cases were selected.
Audit Out of 725 FED Cases
Whereas 3,116 cases were selected through balloting out of 124,004 or 2.5 percent sales tax cases, and 56 cases were selected for audit out of 725 FED cases.
Through the ballot, the tax authority picked only 2.3 percent of the total cases available for audit for income tax, sales tax, and FED for tax year 2017.
FBR Board-in-Council
Shaukat Tarin, a former finance minister, proposed the third-party audit. During Tarin’s term, the FBR Board-in-Council proposed the selection of 22,458 income tax audit cases for third-party audit.
At the time, it was also decided that the process of third-party auditors would be carried out in accordance with the PPRA Rules and the Income Tax Ordinance, 2001.
As a result, it was agreed that the services of third-party auditors would be procured in accordance with the Public Procurement Rules, 2004. This policy of third-party auditing, however, was not enforced.
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