The Federal Board of Revenue (FBR) has decided to exclude certain categories of taxpayers from audit selection for Tax Year 2017 covering cases of salaried income; income tax, sales tax and Federal Excise Duty cases picked by directors Intelligence and Investi-gation Inland Revenue (IR); taxpayers already selected for income/sales tax audit; and cases falling under Final Tax Regime (FTR).
It is learnt that the FBR has approved the audit policy-2018 for risk-based selection of cases for audit pertaining to the Tax Year 2017.
One of the major benchmarks for selection of high risk cases for audit is that the available population of taxpayers has also been divided into large, medium or small based upon value of supplies or imports, whichever is higher.
The FBR has decided to exclude following categories of taxpayers from selection of audit for Tax Year 2017.
Income Tax Exclusions:
1. All cases already selected for audit by the Commissioners Inland Revenue under section 177 of the Income Tax Ordinance for Tax Year, 2016; Tax Year,15 and Tax Year,14.
2. All cases already selected for audit by the Director I&I (IR) under section 177 of the Income Tax Ordinance 0for Tax Year, 2016; 15 and 14.
3. All cases of income from salary where the salary exceeds 50% of taxable income except cases having business income. Directors of the companies would be excluded from this exclusion.
4. All cases already selected for audit under section 214D of the Income Tax Ordinance, 2001, for the Tax Year, 2016; 15 and 14.
5. All cases falling under Final Tax Regime (FTR).
Sales Tax Exclusions:
1. All cases already selected for audit under section 25 and 38 of the Sales Tax Act, 1990 by the Commissioners Inland Revenue or Directors Intelligence and Investigation Inland Revenue (IR) for tax periods corresponding to accounting periods adopted for the purpose of return of income under the Income Tax Ordinance 2001.
Provided that where only a part of the said accounting period had been audited already, the relevant authority may select remaining period for audit.
2. All cases selected for audit under section 72B for tax periods July 2015 to June 2016.
3 All cases of Steel Melters, Steel Re-rollers who are paying sales tax under the Sales Tax Special Procedure Rules, 2007.
4. Federal, provincial and local government departments.
Federal Excise Exclusions:
2. 1. All cases already selected under section 46 of the Federal Excise Act 2005 by Commissioners Inland Revenue or by Directors Intelligence and Investigation Inland Revenue (IR) for tax periods corresponding to accounting periods adopted for the purpose of return of income under the Income Tax Ordinance 2001.
Provided that where only a part of the said accounting period had been audited already, the relevant authority may select remaining period for audit.
2. Federal, provincial and local government departments.
3. All cases selected under section 42B in ballot held under Taxpayer's Audit Policy 2017.
Under the new audit policy 2018, in Audit Policy 2017, financial year July-June was selected as tax period for audit selection in sales tax. This policy made it cumbersome for the taxpayers who have chosen special year/calendar year for the purposes of filing of returns. To address this anomaly, for the purpose of Audit Policy 2018, the tax periods for sales tax under clause (i) of sub-rule (2) of rule 44A of the Sales Tax Rules 2006 would be corresponding accounting period adopted for the purpose of return of income under the Income Tax Ordinance 2001.
A comprehensive risk-gird framework has been adopted for selecting cases for audit. Each parameter is assigned weighted average and benchmark and corresponding risk score. Final score is assigned to each case based upon score in each parameter and variance from the benchmark. Furthermore, to make sure that only high risk cases are selected, available population has also been divided into large, medium or small based upon value of supplies or imports, whichever is higher.
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