Checking abuse of tax laws: internal audit gets more power

The Federal Board of Revenue (FBR) has enhanced the powers of the Directorate General Internal Audit to check wrong application of tax laws by their staff while assessing income/assets with authority to check incorrect application of tax rates, miscalculation of tax credits, inadmissible payments of tax rebates/refunds, non-deduction of withholding taxes and detections of fraudulent and fake tax challans.
Sources told Business Recorder here on Saturday that the DG Internal Audit has issued a manual of audit with the approval of the Board. The Audit Manual has given new powers to the directorate to check the internal working of the IR officials after creation of Inland Revenue Services. The internal audit has started verification of the correct application of tax laws by the field officials in income tax, withholding tax, sales tax and federal excise duty cases.
According to the DG Internal Audit-Manual (2011), the officials would also have the authority to identify inadmissible exemptions/concessions and check valuation of imported goods and examination/classification of imported consignments.
The officials of the directorate would be empowered to conduct internal audit for checking arithmetic accuracy of computation of income, expenditure, assets and liabilities. It would have the authority to detect improper application of tax rates alongwith misreporting, under-reporting and over-reporting of direct taxes collection.
The officials would be empowered to detect miscalculations of various allowances, tax credits, tax rebates and refunds and verify accuracy of depreciation, initial allowance and amortisation allowance and check correctness of carry forward and set off losses. The department would have legal authority to identify improper deduction of Zakat, charge of Workers' Welfare Fund, Workers' Participation Fund, personal medical expenses, double credit on the basis of received and receivables, and detection of recouped expenditures.
The directorate would have the powers to detect wrong and time barred rectification of mistakes, time barred refund applications and wrong issuance of refunds. It would point out mismanagement/ maladministration in the LTUs/ RTOs due to non-maintenance or improper maintenance of prescribed records.
The officials of the directorate would be empowered to cross check the entries of salary statement u/s 165 with returned and assessed income. They can also detect fraudulent and fake challans of tax payment and correctness of brought forward arrears demand, additions and deletions thereof. They can also check Incorporation Certificates in case of transfer and receipt of arrears demand. These officials would have the powers to check the charge of additional taxes and imposition of penalties; pointing out lapses in monitoring of withholding taxes and enforcement of statements u/s 165 and any other area.
The FBR has also empowered the officials of the DG Internal Revenue to review the criteria in vogue for selection of audit cases; evaluate the audit cases in so much as to the extent that the said audit was warranted. They can review/evaluate the depth and quality of the audit conducted and the record examined by the auditors and ascertain as to whether the conclusion of the audit is supported by the law and the procedure and appropriate penalties for offences detected have been considered.
The officials would have the authority to review whether the record of the case and evidences/facts support the conclusion of the audit; review the time cycle of the audit conducted and probe into the reasons in case of exceptional delays and they can review the internal control as applicable in the organisation to ensure the authenticity and transparency of the audit.
These officials would be assigned duties to discover misreporting, under-reporting and over-reporting of indirect taxes collection; check arithmetic accuracy of computation of tax liabilities; detect improper application of tax rates; check examination/classification aspects and examine valuation related issues of the importers. They would also be empowered to identify inadmissible exemptions/concessions; to point out mismanagement/maladministration in the Directorates General/LTUs/RTOs due to non-maintenance or improper maintenance of prescribed records.
They would have the authority to detect wrong and time-bared actions, time-barred refund applications and wrong processing and issuance of refunds; to check the arrears/guarantees/bonds etc and recovery status thereof and any other area covered under law.
The DG Internal Audit-Manual (2011) added that the purpose of audit is to ensure compliance of tax laws and to act as deterrence to tax evasion / avoidance by taxpayers. Its objective includes examining fairly, independently and impartially, leakages and loss of revenue due to negligence, inefficiency, omission or commission and reporting its retrieval. Its aim is also to check the accuracy of calculation of various taxes which are due in relation to payments', declaration of income, filling of returns and statement and payments of taxes.