Parametric selection of cases: FBR finalises new plan for audit

RECORDER REPORT

ISLAMABAD: The Federal Board of Revenue (FBR) has finalised a new plan for parametric selection of cases for audit to ensure monitoring of all stages of audit by the Centralised Tax Audit Task Force to complete the whole exercise in a transparent manner.

Sources told Business Recorder here on Tuesday that the parametric selection of cases for income tax and sales tax audit would be preferred instead of random balloting. The field formations have limited their selection of cases for audit for the tax year 2010 to 50 percent. The remaining 50 percent cases would be selected directly by FBR by applying parameters through computerised system on the basis of approved risk criteria. The parametric selection of cases for audit would be done in cases where the Large Taxpayer Units and Regional Tax Offices (RTOs) had not picked corporate sector, associations of persons (AOPs), business individuals and withholding agents for tax year 2010 under the 'National Annual Audit Plan 2011-12'. The FBR will shortly give final approval of the new plan for the parametric selection of cases for income tax and sales tax audit. It is expected that 16 upgraded parameters would be applied for selection of cases in the corporate sector whereas 20 improved parameters for selection of cases of the AOPs.

Under the new procedure, the discretionary powers of the audit officials have been limited to ensure completion of the exercise without physical interaction with the taxpayers. The Centralised Tax Audit Task Force has been given prime responsibility to monitor all stages of audit starting from issuance of notices to completion of the audit exercise. In this regard, the FBR will first select cases for audit on the basis of refined parameters for corporate sector and AOPs. In the next phase, the cases of business individuals and withholding agents would also be selected for audit. The data of the selected cases would be entered in the Tax Audit Management System (TAMS) for electronic transmission of information of cases to the relevant RTO. The Inland Revenue officials including FBR Member IR, officials of FBR Taxpayer Audit Wing and Chief Commissioners of the RTOs would simultaneously have access the "E-Folder" having information about the ongoing audit of the corporate entities and AOPs. Without physically going to the unit, all concerned officials would have direct access to the "E-Folder" of the audited unit.

One of the important tasks of the Centralised Tax Audit Task Force is to ensure timely completion of the audit of cases selected on the basis of parameters. The Task Force would also ensure quality of audit on the basis of available records. This is a major initiative of the FBR's Taxpayer unit Wing in devising a methodology to ensure audit of the corporate sector and the AOPs without causing any problem to the registered unit.

The Task Force would exclusively deal with selection of risk-based audits based on analysis of information available in FBR's Data Warehouse.

In order to ensure transparency in audit process, the FBR has also decided that sample checking of cases would also be done to analyse the findings of the audit vis-à-vis parameters of selection of cases. The sample checking of cases would result in keeping a close watch on the audit being conducted on the basis of parameters. The Centralised Tax Audit Task Force will also provide opportunity to the registered units to file any complaints against the audit officials in cases of any harassment, if necessary. In this way, Centralised Tax Audit Task Force would be able to ensure electronic monitoring of the audit exercise.

Sources said that the FBR will also make it mandatory for the audit officials to submit monthly report on the progress of audit in cases selected on the basis of parameters.

The FBR will continue to apply the audit policy guidelines for audit of cases selected on the basis of parameters.

According to the audit policy guidelines (2011-12), the audits of the taxpayers are to be made only for the tax year 2010 of income tax and corresponding tax periods of sales tax and federal excise. If audit of preceding years is considered necessary, then after recording reasons in writing, the trail of audit may be extended with prior approval of the Chief Commissioner. The reasons for initiation of audit and issuance of notice may be communicated to the taxpayers under the signatures of the Commissioners of Inland Revenue in the light of relevant statutes.

The FBR said that the cases for audits shall mainly be selected by the Commissioners based on the risk factors developed by FBR. However, he may also select cases for audit on the basis of his local knowledge. The number of such cases must not exceed 20 percent of the total cases selected for audit.

The FBR's audit policy guidelines further said that list of cases selected for audit for tax year 2010 and corresponding tax periods for ST & FED may be sent to the Board for record immediately after issuance of notices.  The audits under the Annual Audit Plan (2011-12) are to be finalised during the current financial year. However, field formations may prioritise audit cases based on risk-assessment and initiate cases simultaneously, or stepwise, in view of the availability and capacity of audit officers.

The audit of withholding tax agents and sales tax refund shall continue as per existing instructions, the FBR maintained.

The audit policy guidelines further show that in case where audit of the taxpayer has already been conducted for the tax year 2009 in respect of income tax, sales tax and federal excise, the same may not generally be conducted again. However, if in the opinion of Commissioner, audit for the tax year 2010 and corresponding tax periods of sales tax/FED is still necessary, the Chief Commissioner may then ask for permission from the Board explaining the reasons along with copies of the pervious audit reports.

The audit policy guidelines stated that the Commissioner shall assign cases for audit to the relevant audit teams to be headed by an officer of appropriate level. Sectoral expertise of team members may also be kept in view.  Assessment in all cases selected for audit where tangible discrepancies have been found which remained unexplained or explanation offered by the taxpayers is not considered satisfactory, must be made under normal law and no agreement with the taxpayer is to be made in that respect, the FBR added.