ISLAMABAD: The Federal Board of Revenue (FBR) has approved Audit Policy-2019 for Tax Year 2018 and decided to select around 10,000 cases of income tax, sales tax and Federal Excise Duty (FED) for audit on the basis of risk-based parameters through computer balloting.
Out of total filers, 0.76 percent of income tax cases would be picked for audit; sales tax 1.67 percent cases and Federal Excise Duty (FED) 5.65 percent cases would be selected for audit, according to Audit Policy-2019.
FBR officials said that the FBR decided to reduce the number of cases for audit because pendency of audit cases stands at close to 400,000. Thus, it has been decided to utilize this deterrence minimum level in order to ensure its effectiveness.
"The exact number picked for audit would be clear after computer balloting. However, 10,000 to 11,000 cases are likely to be selected for audit based on risking profiling parameters" a senior FBR official said. There would be a mixture of parameters but it could not be disclosed and the parameters on the basis of which the cases would be selected for audit would be kept secret. Official added that salaried income would not be selected for audit except cases having business income.
In Tax Year 2017, the FBR selected 14,164 cases for audit of income tax, sales tax and federal excise duty through parameter-based computer balloting.
According to an official announcement made by the FBR here on Wednesday, the FBR has approved the Audit Policy, 2019 pertaining to Tax Year 2018. The Audit Policy, 2019 shall apply to persons or classes of persons falling under all or any of the three domestic Federal Tax Statutes i.e. Income Tax Ordinance 2001, Sales Tax Act 1990, and Federal Excise Act 2005.
FBR has added that criteria for selection of cases (for all taxes) for Tax Year 2018 would be parametric. Cases will be selected on scientific approach for which a software has been designed and put in place named as "Risk Based Audit Management System" (RAMS).
This will enable FBR to focus on cases with maximum non-compliant taxpayers while facilitating compliant taxpayers and building the confidence of taxpayers in the Audit system.
The FBR would shortly conduct computer ballot by applying Risk Based Parameters for selection of 0.76% of cases for audit out of the total filers after exclusions in Income Tax for the Tax Year 2018. For Sales Tax and Federal Excise Duty, the FBR would select 1.67 % and 5.65 % cases for audit respectively out of the total filers after exclusions for tax periods corresponding to accounting period adopted for the purpose of returns of Income Tax, for Tax Year 2018.
However, the FBR has limited the audit cases selected without the risk based system to 10 percent of the total audit subject to the clearance of FBR Member Audit, the FBR said.
In order to facilitate the taxpayers, FBR has approved certain categories of the taxpayers to be excluded from selection i.e. those picked up for investigations by FBR Intelligence & Investigations Wing, all cases where income chargeable to tax under the head salary and /or pension exceeds 50% of taxable income, except cases having business income. Directors of companies do not qualify for this exclusion.
Exclusion also included all cases already selected by the Commissioners Inland Revenue and Director I&I (IR) under section 177 and in consequence of action under section 175 of the Income Tax Ordinance 2001 for Tax Year 2018.
All cases where entire income is covered under Final Tax Regime (FTR), all cases where declaration has been made under the Voluntary Declaration of Domestic Assets Act, 2018, all cases where declaration has been made under the Asset Declaration Ordinance, 2019 and Federal, Provincial and Local Government Departments, have also been excluded.
Sales tax exclusion included all cases already selected under section 25 and section 38 of Sales Tax Act 1990 by the Commissioner Inland Revenue or Director I&I (IR) for tax period corresponding to the accounting period adopted for the purpose of returns of income under Income Tax Ordinance, 2001 for the Tax Year 2018, provided that where only a part of the said accounting period had been audited already, the relevant authority may select the remaining period for audit.
Exclusions also included the federal, provincial and local government departments.
All cases where declaration where declaration has been made under the Voluntary Declaration of Domestic Assets Act, 2018, all cases where declaration has been made under the Asset Declaration Ordinance, 2019 have also been excluded from the sales tax audit.
On the same pattern, similar exclusions are available for the cases of Federal Excise Duty.
As per law, the parameters for selection of cases for audit are confidential and hence shall not be disclosed. In case of income tax, the risk parameters applied to a taxpayer selected for audit can be communicated on demand as per order of Lahore High Court. The risk parameters of sales tax would not be disclosed in accordance with section 72B(IA) of the Sales Tax Act 1990. The risk parameters of the FED would not be disclosed in accordance with section 42B(IA) of the Federal Excise Act 2005.
Balloting on the basis of above policy would be held shortly. The Audit Policy, 2019 pertaining to Tax Year 2018 has also been placed on the website of FBR which can be accessed at www.fbr.gov.pk.
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