Number of audit cases finalised by FBR nosedive: World Bank

The World Bank has noted with concern that the total number of audit cases finalised by the Federal Board of Revenue has nose-dived from 77,000 in 2009-10 to 61,500 in 2010-11, reflecting decrease in audit of 15,500 registered persons.
Sources told Business Recorder here on Tuesday that the WB report on the overall performance of Tax Administration Reform Project (TARP) revealed that the performance of the audit authorities deteriorated during 2010-11 as compared to 2009-10 as both number of audit conducted and amount recovered showed downward trend.
According to a WB report, audit performance has decreased considerably from 2009-10 to 2010-11. The number of audits finalised fell from 77,000 in 2009-10 to 61,500 in 2010-11. The recovery from audit assessments fell from Rs 85,107 million in 2009-10 to Rs 20,554 million in 20 10-11 (it fell from 54.57 percent on detection to 20.97 percent). The recovery as a percent of net FBR collection came down from 6.66 percent to 1.32 percent. This may indicate that FBR auditors are over assessing taxpayers in their audit. This conclusion is also endorsed by the fact that most appeals were granted to taxpayers even at the FBR appeals judgement level, the report said.
The results of audit in 2010-11 (as of March 31, 2011) showed that the audit finalised against the taxpayers stood at 61,556; detections of Rs 98,024 million and recovery through audit was Rs 20,554 million during the period under review.
The report further said that FBR has implemented several measures under TARP to reduce evasion and increase compliance. The first and most important thing was the introduction of a modern self-assessment system for both direct and indirect taxes. This system is now operating smoothly in Pakistan. Tax audits have been re-activated and they are now determined by an annual audit plan. The selection of taxpayers for audit is based on a risk management system, and a tax audit management system (TAMS) has been implemented to assist with case allocation to auditors and follow up on audit work. It also produces management information on audit. The system is now being reviewed for further improvement. The FBR massively crosschecks information to detect tax evasion. In particular, the FBR cross-checked information from taxpayers' invoices filed/attached to tax returns and import/export information from Customs Department.
Nevertheless, lower than expected collection level is also the result of FBR management's lack of success in delivering decisive change as originally envisioned by the TARP.
As reported to FBR management throughout Bank's Aid Memoirs and Mission Reports during the past few years, recurrent critical factors affecting the satisfactory implementation of TARP are, among others, the following: i) unstable tenure at top and mid-management levels; ii) weak management and implementation of the reform action plan; iii) insufficient reform actions to streamline the audit function; iv) the absence of an institutionalised M&E system; and v) underutilisation of newly deployed IT-systems at field formations, the WB report added.