Desk audit and risk assessment: FBR finalising 25 parameters

The Federal Board of Revenue is finalising 25 parameters for income tax desk audit and risk assessment criteria under Income Tax Ordinance 2001 to detect under-reporting of taxes and concealment of income without physical interaction with the registered taxpayers.
Sources told Business Recorder here on Thursday that the FBR consultants have submitted the desk audit and risk assessment parameters to the FBR Inland Revenue and Policy Wings, etc, for finalisation of the audit criteria to be applicable in all the field formations. This is for the first time that the FBR will issue desk audit assessment criteria for the Large Taxpayers Units (LTUs) and Regional Tax Offices (RTOs) for verification of tax records based on 25 laid down parameters. So far, the Board has not yet issued any standard parameters for desk audit to the field formations.
According to the proposed desk-audit risk assessment parameters drafted by tax advisors of the FBR, the detailed rational, criterion, formula, information/documents to be requisitioned and work to be done under each risk assessment parameters would also be needed for completion of the task.
The proposed desk audit risk assessment parameters included verification of claim of Zakat Deduction, verification of claim of charitable donations qualifying for straight deduction, verification of claim of exempt income and apportionment of expenses, verification of claim of tax reductions, credits and averaging, verification of claim of prior years refunds adjustments, verification of claim of brought forward losses/unabsorbed depreciation and verification of Workers Welfare Fund.
The proposed desk-audit risk assessment parameters also included variation in sales as per sales tax returns and income tax returns (difference of more than 1%), final tax chargeable and final tax collected or deducted at source do not match (Variance tolerance 1 percent), verification of apportionment of business income between Presumptive Tax Regime (PTR) and non-PTR compliance of third proviso to sub-section (6) of section 153 (minimum tax on services) of the Ordinance 2001.
The proposed desk-audit risk assessment parameters covers review of wealth statement and reconciliation thereof, return on capital less than 10 percent, return on capital is more than 20 percent, refund claim of Rs 50,000 or more in non-corporate cases and non-listed companies and Rs500,000 or more in other corporate cases and verification of addition in depreciable assets, intangibles and sources thereof and correctness of the claim of depreciation and amortisation.
The proposed desk audit risk assessment parameters included verification of restriction of cost of addition in vehicles not plying for hire, verification of validity of claim of tax deducted from sale of goods and execution of contracts as an adjustable tax, verification of sources of sales tax refunds outstanding, verification of sources of purchase of motor vehicles and variance of more than 20% in average annual sales to monthly sales reported in sales tax returns (period may be more than three months).
The desk-audit parameters also included physical review of all auditors report as to any qualification or emphasis para and to ascertain the tax consequences thereof, increase in ratio of creditors to purchases over last three years average to establish genuineness of the creditors by cross verification and declaring business income including PTR sources and the amount of cash withdrawals worked out on the basis of claim of tax collected under section 233A of the Income Tax Ordinance 2001 (cash withdrawal from banks) is more than 20 percent of the turnover declared and declaring business loss for the last three years.