FBR Audit Policy 2017: Pakistan’s Salaried Class Exempted From Tax Audit

Pakistan recently approved the audit policy 2017 for the fiscal year 2016. Under the policy, Federal Board of Revenue (FBR) has already selected 44,868 cases for audit through computer balloting. Salaried persons will be exempted from selection for audit as “the FBR wants to focus only on the areas that have the potential to pay tax.”

Apart from that, the cases picked for audit this year will not be selected again for next two consecutive financial years.

Overall, the following exemptions have been made for sales tax, federal excise, and income tax audits.

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Sales Tax

• All cases already taken up for audit for Tax Period(s) July 201 5 to June, 201 6 under section 25, and 38 of the Sales Tax Act, 1990 by the Commissioners Inland Revenue;
• Cases already taken up for audit/investigation for Tax Period(s) July 2015 to June 2016 under section 25/38 of the Sales Tax Act 1990 by the Directorate of I&I (IR);
• All cases selected for audit under section 72B for Tax Periods July 2014 to June 2015.
• All cases of Steel Melters, Steel Re-rollers who are paying sales tax under the Sales Tax Special Procedure Rules, 2007;
• Federal, Provincial and Local Government Departments.

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Federal Excise

• All cases already taken up for audit for Tax Periods July 2015 to June 2016, by the Commissioners Inland Revenue;
• Cases already taken up for audit / Investigation for Tax Periods July 2015 to June 2016 under section 46 of the Federal Excise Act, 2005, by the Directorate General of I&I (IR)
• Federal, Provincial and Local Government Departments;
• All cases of audit selected under section 42B for the Tax Periods July 2014 to June 2015.

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Income Tax

• All cases already selected for audit by the Commissioners Inland Revenue under section 177 of the Income Tax Ordinance for Tax Year, 2016 ;
• All cases already selected for audit by the Director I&I (IR) under section 177 of the Income Tax Ordinance for Tax Year, 2016.
• All cases already selected for audit under section 214D of the Income Tax Ordinance, 2001, for the Tax Year, 2016.
• All cases selected for audit u/s 214C for Tax Year 2015.
• All cases of Income from Salary where the salary exceeds 50% of taxable income except cases having business income.
• Cases under Voluntary Tax Compliance Scheme (VTCS) for traders.
• All cases falling under Final Tax Regime (FTR).

Cases Selected for Audit

Previously, it was announced that FBR will pick 7.5% out of the total 925,000 pending cases for the tax audit. However, after balloting only less than 4% cases have been picked by the board.

Special Assistant to Prime Minister on Revenue, Haroon Akhtar, told that the primary reason behind such staggering number of pending cases is FBR’s lack of capacity to conduct investigations. He added that the government is thinking of discarding the Section 214-D of the Income Tax Ordinance which is the reason behind the accumulation of cases.

Under all six categories in the Audit Policy 2017, following number of cases have been picked;

• 34,515 cases picked from the non-corporate income tax returns category,
• 7,532 cases picked from the non-corporate sales tax returns category.
• 1,274 cases picked from sales tax (corporate) category.
• 1,499 cases selected from the corporate income tax cases category.
• 48 cases selected from federal excise audit under corporate and non-corporate categories.

Talking about the amnesty scheme, Haroon Akhtar added;

The business community asked us for amnesty, we gave them the amnesty scheme; they asked us for lowering tax rates, we did that; in some cases, we gave them even more relief than what they had asked for and the entire purpose of facilitating the business community was to foster business activities, promote growth and generate more revenues in the process. We have delivered all that people had asked for, now pay your taxes.

He further added that General Headquarters (GHQ) is cooperating as well to bring armed forces’ personnel under the tax net. Haroon stated that “the GHQ wants its personnel to be law-abiding citizens.”