FBR to Conduct Investigative Sales Tax Audit

FBR to Conduct Investigative Sales Tax Audit

Karachi, June 23, 2024 – The Federal Board of Revenue (FBR) is set to conduct investigative audits of sales tax cases starting from the next fiscal year, according to official sources.

The FBR has been granted the authority to perform investigative audits in instances of suspected tax fraud. As per the proposed section, if during an audit under section 25 of the Sales Tax Act, 1990, or through other means, the audit officer, based on the balance of probabilities, suspects that a registered person is involved in tax fraud, they may initiate an investigative audit. This action requires approval from the concerned Commissioner of the FBR. The investigative audit must be completed within ninety days of initiation.

Consequent to an investigative audit, the audit officer of the FBR is empowered to take several actions under sections 11E and 11D of the Sales Tax Act, 1990. These actions include:

1. Blocking the registered person under section 21 of the Act.

2. Imposing penalties and prosecuting the registered person as per Serial No. 13 of the Table in Section 33 of the Act.

Analysts have raised concerns regarding the proposed section 25AB of the Sales Tax Act, 1990, stating that it employs vague and ambiguous language. They argue that the terms used in the section grant the audit officer discretionary powers that could lead to unwarranted and prolonged litigation. Additionally, there appears to be a contradiction between the provisions of the proposed section 25AB and section 21(2) of the Act. Under section 21(2), only the Commissioner is authorized to issue an order of blocking registered person.

The ambiguity in the language of the proposed section 25AB could potentially lead to misuse of power and create challenges for registered taxpayers. The discretionary nature of the investigative audit process, as outlined, might result in disputes and legal battles, which could burden the judicial system and impact businesses negatively.

Despite these concerns, the FBR’s move to introduce investigative audits aims to strengthen the enforcement of tax laws and curb tax fraud. By enhancing the scrutiny of sales tax records and transactions, the FBR seeks to ensure compliance and increase revenue collection. However, the implementation of this new audit mechanism will require careful oversight to prevent misuse of power and ensure fair treatment of taxpayers.

In conclusion, while the FBR’s initiative to conduct investigative sales tax audits reflects its commitment to combating tax fraud, it also necessitates clear guidelines and safeguards to avoid potential legal complications and ensure transparency in the auditing process.