Commissioners can direct independent re-audits and inventory re-valuations with prior approval to strengthen sales tax compliance.
ISLAMABAD: The Federal Board of Revenue (FBR) has empowered Commissioners of Inland Revenue to order the re-audit of taxpayers’ accounts under amendments introduced through the Finance Act, 2026 to the Sales Tax Act, 1990, significantly expanding the tax authority’s audit powers.
The new provisions enable tax authorities to require registered persons to undergo an independent re-audit or inventory re-valuation where concerns arise over the accuracy, complexity or reliability of their tax records.
Commissioners authorised to order re-audits
Under the newly inserted Section 25(8A) of the Sales Tax Act, 1990, a Commissioner of Inland Revenue may, after obtaining prior approval from the Chief Commissioner and providing the taxpayer with a reasonable opportunity of being heard, direct a registered person to:
• Have its accounts re-audited by a qualified accountant; or
• Obtain an inventory re-valuation from a qualified cost accountant.
The Commissioner may exercise this power where such action is considered necessary in the interest of revenue, taking into account factors including:
• The nature and complexity of the taxpayer’s accounts;
• The volume and multiplicity of transactions;
• Doubts regarding the correctness of the accounts; and
• The specialised nature of the taxpayer’s business activities.
FBR to nominate independent auditors
The amendments provide that the accountant or cost accountant responsible for conducting the re-audit or inventory re-valuation will be nominated by the Commissioner from a panel approved by the FBR.
The appointed professional will be required to submit a signed and verified report addressing the specific issues and queries raised by the Commissioner.
Audit report now mandatory
The Finance Act, 2026 has also inserted Section 25(8B), making it mandatory for the Inland Revenue officer to issue a formal audit report after completing the audit process.
Before issuing the report, the officer must obtain the taxpayer’s explanation regarding all audit observations and findings. The final report will contain the audit conclusions along with the officer’s final observations.
Other amendments to audit framework
The Finance Act has introduced additional changes to the Sales Tax Act’s audit provisions.
Section 25(9) has been amended by replacing the phrase “completion of the audit” with “issuing the audit report”, providing greater clarity on when audit proceedings are deemed complete.
Meanwhile, amendments to Section 25(11) provide relief to taxpayers involved in audit-related proceedings by requiring payment of 50 per cent of the disputed amount, instead of the full amount, under specified circumstances.
Strengthening tax administration
According to the amendments, the revised audit framework is intended to strengthen tax administration, improve the accuracy of tax declarations and enhance compliance through independent verification where complex transactions or questionable records are identified.
The new provisions also provide the FBR with greater oversight in cases involving specialised businesses, high transaction volumes or suspected inaccuracies, while requiring prior approval from the Chief Commissioner and ensuring taxpayers are given an opportunity to present their case before any re-audit is ordered.