Reformed tax audit system: survey reveals lack of awareness among business communities

A large number of companies, Association of Persons (AOPs) and business individuals as well as tax consultants have no idea about the reformed income tax audit system of the Federal Board of Revenue (FBR), reflecting lack of awareness among the business communities on audit under the Universal Self-Assessment Scheme (USAS).
It is leant here on Saturday that these are the findings of a survey on audit conducted by a foreign company on behalf of the FBR. The survey population covered corporate sector, AOPs, trade bodies, legal experts, trade bodies, large taxpayers, NGOs and consultants, etc.
According to the survey, the objective of the tax audit was to develop readily traceable and transparent computerised selection for audit and control distribution of taxpayer folders. Analysis of overall responses shows that 68% of respondents don't know the extent to which reformed tax audit system is serving revenue interest. A minor number of stakeholders ie 10% agree to a large extent whereas this number was 7-15% in the previous study.
Overall findings for adequacy of risk management system for selection of Tax Audit cases follow the trend of all departments where 72% of respondents "don't know" 19 percent agree to some extent and 9% agree to a large extent. Awareness level of tax authorities is higher than other stakeholders where 71% agree to some extent. In the previous study this was around 50% which shows improvement in the perception of tax authorities related to adequacy of risk.
Overall analysis of reliance of tax audit system on taxpayers' declaration across all departments shows that majority of respondents ie 71% of respondents don't know, 14% agree to some extent and 8% agree to a large extent. Awareness level in tax authorities remains highest with 39% agreeing to a large extent and 46% agreeing to some extent. 46% of tax authorities, 37% of legal experts and 36% of agents/intermediaries agree to some extent.
Around 50-74% of all categories of respondents (ie 52% direct and 63% of indirect tax officials, 61% of salaried people, 50/51% small and medium taxpayers, 58% of large taxpayers, 68% of intermediaries and 74% of trade bodies) indicate that the filing requirements have been "to some extent" simplified. A small percentage of respondents ie less than 6-8% of respondents other than large taxpayers reflect that there have been "no change" in the filing requirements.
Data analysis shows that 50% of the respondents are not aware of the simplification of tax filing documents, non-taxpayers (70%) and small businesses (65%) are highly unaware. About 15% of respondents perceive moderate level of user friendliness, 21% perceive to some extent and 10% perceive no user friendliness. Agents (39%) and large taxpayers (25%) agree to large extent. Legal experts (29%) and large taxpayers (24%) agree to some extent. Trade bodies (14%), NGOs (17%), individual taxpayers (10%), agents (10%) do not think that user friendliness is achieved.
The survey results further revealed that 63 percent of respondents don't know about the existence of reformed tax audit system, 28 percent agree to some extent and 10% agree to a large extent. Around 74 percent of small businesses, 81% of NGOs and 70% of medium businesses show least knowledge about the reformed tax audit system. Nearly 26 percent of tax authorities agree to a large extent, whereas 64% of tax authorities agree to some extent about the existence of reformed audit tax system in income tax. Over 41 percent of trade bodies, 46 percent of legal experts and 42 percent of large taxpayers think that reformed audit tax system is in place to some extent.
Similar results have been observed on the sales tax audit side. The statistics of the survey results show that 67% of respondents don't know about the existence of reformed tax audit system, 22% agree to some extent and 11% agree to a large extent. Over 78% of small businesses, 89% of NGOs and 72% of medium businesses don't have knowledge of reformed audit tax system. About 26% of tax authorities, 20% of large taxpayers, 14% of legal experts and 13% of individual taxpayers and agents each agree to a large extent whereas 64% of tax authorities, 44% of trade bodies, 39% of large taxpayers and 33% of legal experts agree to some extent that reformed audit tax system is in place in sales tax.
On the customs side, the statistics show that 74% of respondents don't know to what extent reformed audit tax system is in place in customs. Approximately 17% agree to some extent and 9% agree to a large extent. The NGOs/opinion makers, small businesses, medium businesses individual taxpayers share "don't know" largely with 93%, 85%, 79% and 73% respectively. About 29% of agents/intermediaries perceive existence of reformed tax audit system to a large extent. 61% of tax authorities and 40% large taxpayers agree to some extent.
About the Federal Excise Duty, the data shows that 73% of respondents don't know about the existence of reformed tax audit system in federal excise, 17% agree to some extent and only 10% agree to a large extent. Nearly 82% of small businesses, 89% of NGOs and 77% of medium businesses don't have the knowledge about existence of reformed audit tax system. Nearly 29% of tax authorities agree to a large extent whereas 58% of tax authorities and 40% of large taxpayers agree to some extent that reformed audit tax system is in place in federal excise.
The survey results show that the overall existence of reformed audit tax system follows the trend as depicted department-wise. 63% of respondents don't know about the existence of reformed audit tax system. A minor number of stakeholders ie 11% agree to a large extent and 26% agree to some extent that reformed audit tax system exists. Further, analysis shows that 85% of NGOs/opinion makers, 75% of small businesses, 71% of medium businesses, 56% of individual tax payers and 51% of legal experts don't know the existence of reformed audit tax system. About 28% of tax authorities and 19% of agent/intermediaries believe to some extent whereas 60% of tax authorities and 41-43% of trade bodies, legal experts and large taxpayers believe that reformed tax audit system is in place to some extent.
The survey results further show that 68 percent of respondents don't know the extent to which reformed tax audit system is serving revenue interest in income tax department. Twenty one percent agree to some extent and only 11% agree to a large extent. Around 79% of small businesses of NGOs, 75% of medium businesses and 70% of agents/intermediaries don't have knowledge about the contribution of reformed audit tax system in serving interest. Tax authorities are highly aware and 66% agree to some extent, legal experts and large taxpayer each agree to some extent. Over 24 percent authorities, 19% of trade bodies and 17 percent of large taxpayers agree to a extent. Similarly, data shows that 71% of respondents don't know the extent to which reformed tax audit system is serving revenue interest in sales tax department. Around 19% agree to some extent and only 10% agree to a large extent. Nearly 81% of small businesses, 85% of NGOs, 77% of medium businesses and 70% of agents/intermediaries don't have knowledge about the contribution of reformed audit tax system in serving revenue interest. Tax authorities are highly aware and 63% agree to some extent. On other hand 39% of trade bodies and large taxpayers each agree to some extent. Whereas 27% of tax authorities agree that reformed audit tax system is serving revenue interests to a large extent.
The analysis of overall responses shows that 68% of respondents don't know the extent to which reformed tax audit system is serving revenue interest. A small number of stakeholders ie 10% agree to a large extent and 22 percent agree to some extent that reformed audit tax system is serving revenue interest. Further, analysis shows that 80% of small businesses, 81% of NGOs/opinion makers, 76 percent of medium businesses and 63% of individual tax payers don't know about the extent to which reformed audit tax system is serving revenue interests.27% of tax authorities and 17% of large tax payers and trade bodies each agree to some extent whereas 61% of tax authorities and 34-42% of trade bodies, legal experts and large taxpayers believe that reformed tax audit system is serving revenue interests to some extent.
About the adequacy of risk management system for selection of Tax Audit cases, the survey report revealed that data shows that 72% of respondents don't know to what extent risk management system is adequate for selection of Tax Audit cases in income tax. Around 18 percent agree to some extent and 9% agree to a large extent. NGOs/opinion makers, small businesses, medium businesses individual tax payers and agents form large part of "don't know" fraction with 85%, 82%, 79%, 69% and 77% respectively. Over 22% of trade bodies and 20% of tax authorities perceive adequate risk management system for selection of Tax Audit cases to a large extent. On the other hand 69% of tax authorities and 41% of legal experts and 34% of large taxpayers agree to some extent.
Data shows that 53% of trade body representatives don't know to what extent risk management system is adequate for selection of Tax Audit cases in sales tax. Nearly 29% agree to some extent and 19% agree to a large extent. NGOs/opinion maker small businesses, medium businesses individual tax payers and agents form large part of "don't know" fraction with 85%, 80%, 80%, 72% and 77% respectively l9% of trade bodies and 17% of tax authorities perceive adequate risk management system for selection of Tax Audit cases to a large extent. On the other hand 72% of tax authorities and 42% of legal experts and 37% of large taxpayers agree to some extent.
Audit results further revealed that 71% of respondents don't know about the reliance of tax audit system on taxpayers' declaration in income tax department. 19% agree to some extent and 10% agree to a large extent. NGOs/opinion makers, small businesses, medium businesses individual tax payers and agents form large part of "don't know" fraction with 85%, 81%, 77%, 68% and 70% respectively tax authorities are better aware than other stakeholders, 35% agree to a large extent and 53% agree to some extent. 43% of legal experts, 37% of large taxpayers and 33% of trade bodies agree to some extent. A very small number of stakeholders 7-16%) from all categories except tax authorities agree to a large extent.
Data trend suggests that 73% of respondents don't know about the reliance of tax audit system on taxpayers' declaration in sales tax, 17% agree to some extent and 10% agree to a large extent. NGOs/opinion makers, small businesses, medium businesses individual tax payers and agents form large part of "don't know" fraction with 85%, 82%, 79%, 73% and 68% respectively. Tax authorities are better aware than other stakeholders, 37% agree to a large extent and 51% agree to some extent. 41% of legal experts and 33% of large taxpayers also share their agreement to some extent. A very small number of stakeholders (4-19%) from all categories except tax authorities agree to a large extent.
On the customs side, data analysis indicates that majority of respondents ie 78% of respondents don't know about the reliance of tax audit system on taxpayers' declaration in customs. Over 14% agree to some extent and 8% agree to a large extent. NGOs/opinion makers, small businesses, medium businesses, legal experts and individual tax payers form large part of "don't know)" fraction with 93%, 86%, 83%, 63% and 80% respectively. Tax authorities are better aware than other stakeholders, 32% agree to a large extent and 43% agree to some extent. 25% of legal experts, 36% of large taxpayers and 26% of trade bodies agree to some extent. A very small number of stakeholders (6-14%) from all categories except tax authorities agree to a large extent.
Data analysis indicates that majority of respondents ie 77% of respondents don't know about the reliance of tax audit system on taxpayers' declaration in federal excise. 14% agree to some extent and 9% agree to a large extent. NGOs/opinion makers, small businesses, medium businesses, individual tax payers and agents/intermediaries with 89%, 84%, 81%, 80% and 74% respectively, contribute to "don't know" option. Awareness level in tax authorities is highest with 37% agreeing to a large extent and 49% agreeing to some extent. 49% of tax authorities, 32% of legal experts and 35% of large taxpayers agree to some extent. A very small number of stakeholders (4-16%) from all categories except tax authorities agree to a large extent, audit report said.
The survey report further said that the overall analysis of reliance of tax audit system on taxpayers' declaration across all departments shows that majority of respondents ie 71% of respondents don't know, 20% agree to some extent and 10% agree to a large extent. Awareness level in tax authorities remains highest with 39% agreeing to a large extent and 46% agreeing to some extent. 42% of legal experts and 36% of agents/intermediaries agree to some extent. A very small number of stakeholders (6-17%) from all categories except tax authorities agree to a large extent.
The FBR has also conducted survey on the extent of tax audit's system reliance on third party information. Data analysis indicates that majority of respondents ie 73% don't know about the reliance of tax audit system on third party facilitation in income tax. 18% agree to some extent and 9% agree to a large extent. NGOs/opinion makers, small businesses, medium businesses, individual tax payers and agents/intermediaries with 85%, 82%, 80%, 71% and 74% respectively, contribute to "don't know" option. Awareness level in tax authorities is highest with 57% agreeing to some extent and 24% agreeing to a large extent. 41% of legal experts and 38% of large taxpayers agree to some extent. A very small number of stakeholders (4-13%) from all categories except tax authorities agree to a large extent.
On the issue of levels of efficiency and effectiveness of reformed tax audit system, survey report said most of the respondents ie 45% are not aware of the efficiency and effectiveness of reformed audit tax system in income tax. 3% perceive it very effective, 10% effective, 21% moderate, 13% somewhat effective and 8% perceive the system ineffective and inefficient. NGOs/opinion makers (81%) are highly unaware followed by agents/intermediaries (62%). Tax authorities (20%) and large taxpayers (21%) perceive the system effective and efficient. A very small number of stakeholders (1-7%) perceive it very effective and efficient. On other hand 20 percent of tax authorities, 12% of large taxpayers, 10% of trade bodies and 9 percent of individual taxpayers don't see effectiveness and efficiency at all.
The tax survey would also be conducted on the level of audit skills (trade and industry specialisation) achieved by tax auditors/examiners through these tax reforms. The data indicated that 51% of respondents are not aware of the audit skills that have been achieved by auditors. Only 1% of respondents perceive very high level skills, 10% perceive high level of skills, 19% perceive moderate of level skills, 12% perceive low level of skills and 6% see no skill improvement. NGOs/opinion makers (88%) are highly unaware whereas tax authorities (8%) are highly aware of the skills achieved by auditors.
Mixed response is received from all respondents with majority opting for moderate rating; 65% of tax authorities, 27% of trade bodies, 26% of large tax payers and 24% of agents/intermediaries perceive moderate skill improvement, survey report added.