Tax dept misuses authority: Automatic audit selection under fire

LAHORE: The tax department’s automatic selection of tax returns for audit has come under scrutiny, with critics labelling it a misuse of authority. Section 214D of the tax ordinance has been deemed “coercive” and even “draconian” due to its stringent measures to ensure timely filing of returns. Taxpayers who default on filing within the stipulated period are automatically subject to audit under Section 177, imposing a significant burden.

It may be noted that the audit requirements outlined in Section 177 are broad and onerous, placing an undue weight on taxpayers. This has led to numerous legal disputes and controversies, with the courts frequently intervening.

Normally, selection for audit follows a rigorous process, involving various statutory filters outlined in Federal Board of Revenue circulars. However, the tax department’s automatic selection process bypasses these safeguards, raising concerns about fairness and transparency.

Taxpayers are worried about the arbitrary nature of the audit selection process. With the tax department’s increased scrutiny, even small discrepancies can trigger an audit, causing undue stress and financial burdens.

Experts urge the tax department to revisit its audit selection process, ensuring it is fair, transparent, and in line with statutory guidelines. By doing so, the department can alleviate taxpayers’ concerns and promote a more positive relationship between taxpayers and the government.

Pakistan’s tax practitioners are united in their criticism of the tax department’s automatic audit selection process under Section 214D of the Tax Ordinance. Experts deem the practice “unfair”, “coercive”, and “contrary to legislative intent”.

Ali Ahmed, a tax lawyer said, “Automatic audit selection bypasses statutory filters, allowing the tax department to harass taxpayers. This draconian measure imposes undue stress and financial burdens on businesses.”

Muhammad Suleiman, another lawyer, maintained that Section 214D’s broad language enables arbitrary audit selections. Taxpayers are left vulnerable to discretionary decisions, undermining the principle of fairness in tax administration. “The tax department’s aggressive policies create a climate of fear. Taxpayers are reluctant to comply due to the risk of unwarranted audits. This approach hampers voluntary compliance and fosters distrust,” he added.

Pakistan’s tax community demands change, advocating for a fair and equitable tax administration system.

Copyright Business Recorder, 2024