Third-party tax audit procedure nearly finalized

ISLAMABAD: Taxpayers, including the corporate sector, may directly receive audit notices from third-party auditors including chartered accountant firms for detailed scrutiny of the tax affairs of registered persons to be selected for audit.

Sources told Business Recorder that the Federal Board of Revenue (FBR) has almost finalized the procedure for third-party audit of taxpayers to be selected through parametric computerised balloting during the current month. The FBR’s interference in audit may be limited to the selection of cases under the approved parameters/criteria for companies, association of persons and individuals categories of taxpayers.

According to sources, the FBR is expected to inform the field formations for not directly issuing any audit notice to the taxpayers. Except finalization of past cases, the FBR may not directly issue notices for audit purposes.

The FBR is expected to outsource audits to the panel of auditors already notified by the Board in the past. The FBR can also add new CA firms in the list of auditors assigned to conduct audits of the taxpayers.

The audit would be outsourced to third-party auditors after selection of cases through the computerised balloting. The field formations would focus on other assignments like broadening the tax base, retail sector, recovery and assessments etc, but would not be involved in audit.

Audit through parametric computer ballot: FBR approves new policy for case selection

The FBR had approved the new audit policy for 2020 for income tax, sales tax, and federal excise duty (FED) for selection of cases for audit through parametric computerised balloting for the Tax Year 2019.

The Board-in-Council had approved the new audit policy for a parametric computerized balloting for the Tax Year 2019.

After the approval of the new audit policy for 2020, the FBR is expected to issue the new policy and select a lower percentage of cases for audit.

The new Audit Policy of the FBR has also laid down a mechanism for third-party audit of willful tax defaulters, non-filers, and cases of concealment of income through chartered accountant firms.

The major cases of concealment of income could be referred for third-party audit for which detailed mechanism/system has been chalked out by the tax department.

Copyright Business Recorder, 2021