FBR to Send Audit Notices to Taxpayers

Taxpayers across Pakistan are expected to receive audit notices from the Federal Board of Revenue (FBR) after parametric computerized balloting during October 2021.

Sources told Propakistani that the audit notices with bar codes would be issued to the taxpayers selected for the audit. Any notice received by the taxpayers without a bar code would be illegal and have no legal backing of the FBR.

The percentage of audits is yet to be finalized. However, the FBR decided to reduce the number of cases for audit keeping in view the pendency of audit cases, and audit deterrence would be utilized at a minimum level to ensure its effectiveness.

In Tax Year 2017, the FBR selected 14,164 cases for audit of income tax, sales tax, and federal excise duty through parameter-based computer balloting.

In Tax Year 2018, a total of 10,000 cases were selected for audit.

For the Tax Year 2019, the percentage of audit cases is yet to be finalized, but it could be between 9,000 to 10,000 cases.

Some categories of taxpayers may be excluded from the parametric computerized balloting process.

The categories could be cases that availed the amnesty schemes announced by the FBR, cases picked up for investigations by FBR Intelligence & Investigations Wing, cases where income chargeable to tax under the head salary and/or pension exceeds 50 percent of taxable income, except cases having a business income.

The FBR may exclude all cases from audits where declarations have been made under the amnesty schemes.

Exclusion may include all cases already selected by the Commissioners Inland Revenue and Director I&I (IR) under section 177 and in consequence of action under section 175 of the Income Tax Ordinance 2001.

The FBR may exclude cases where the entire income is covered under the Final Tax Regime (FTR). Sales tax exclusion may cover all cases already selected under section 25 and section 38 of the Sales Tax Act 1990 by the Commissioner Inland Revenue or Director I&I (IR) for tax period corresponding to the accounting period adopted for returns of income under Income Tax Ordinance, 2001.

Exclusions may also include the federal, provincial and local government departments. On the same pattern, similar exclusions are available for the cases of Federal Excise Duty.

The new feature of the audit policy would be a detailed procedure for third-party audits by chartered accountant firms and companies. The major cases of concealment of income could be referred for third-party audit, for which a detailed mechanism/system would be laid down in the new audit policy.

Cases will be selected on a scientific approach, for which software has been designed and put in place named as “Risk-Based Audit Management System” (RAMS). This will enable FBR to focus on cases with maximum non-compliant taxpayers while facilitating compliant taxpayers and building the confidence of taxpayers in the Audit system, they added.