Tax audit of parliamentarians

A Business Recorder exclusive carried the names of those selected for audit for tax year 2015-16 by the Federal Board of Revenue (FBR) by employing a parametric selection mechanism through a computer ballot. They included Imran Khan as well as federal ministers Khawaja Asif and Zahid Hamid and Hamza Shahbaz, MNA. A look at the National Assembly parliamentarians selected for audit reveal that the majority were from the PML-N which indicates that the selection process was truly random.
Three members were selected from Balochistan Assembly, including former Chief Minister Dr Abdul Malik, four from Khyber Pakhtunkhwa Assembly, 36 from Punjab Assembly (including Shafqat Mehmud) and 24 from Sindh Assembly (including Chief Minister Murad Ali Shah) for audit. However, here too there is evidence to suggest that the selection of the audit was truly random but it is critical to caution FBR to carry out the audits of all those selected in a fair, equitable and transparent manner - key considerations that are, unfortunately, not part of our tax system that continues to be unfair (with heavier reliance on indirect taxes whose incidence on the poor is greater than on the rich), unfair (with withholding tax being cut at the higher non-filer rate on those exempt from filing their returns, for example, pensioners, housewives, students, etc) and anomalous such as presumptive taxation.
There is also ample evidence to suggest that the FBR is lax in initiating a transparent inquiry against members of the executive and/or the influentials and to add insult to the injury the FBR also lacks the powers to proactively proceed against tax evaders and tax avoiders as its response to the Panama Papers has clearly shown. The blame for this rests with the parliamentarians in general and the government in particular. More disturbing is the fact that there are several statutory regulatory orders (SROs) where mention is specifically made of a provision that may be used to avoid taxes. These SROs need to be urgently revisited as they reflect a mindset that is no longer acceptable to either the general public or indeed the international community given a plethora of laws that have been enacted worldwide subsequent to the release of the Panama Papers.
The random audit selected 7.5 percent of all those who filed their returns and in this context too serious question arises. The measure of the performance of any staff member in the audit department is directly linked to the numbers whose audit report has concluded that there were irregularities - a measure that encourages a staff member to identify a high number of irregularities and, according to many tax filers, accounts for their harassment. Once the audit officer concludes that there have been irregularities and if the accused challenges the decision then in the event that the case does not withstand the test in a court of law the performance of the audit officer should be discounted. Or better still the audit department should link the staff members' performance not to the number of accusations made but the court decisions that support his/her investigation outcome.
To conclude, audit is the hallmark of most tax authorities around the world and provides a major deterrent to prospective evaders and avoiders. However, its implementation has to be above board and non-partisan and one would urge the FBR to ensure this to make this exercise a success.