Income Tax Ordinance 2001: Taxpayers require to keep 6-year tax record for audit

The Federal Board of Revenue (FBR) has recently introduced amendments to the Income Tax Ordinance, 2001, emphasizing the importance of maintaining accurate records by taxpayers.

The updated provisions outline specific guidelines for record-keeping, which are crucial for examination and audit purposes. Taxpayers are now required to preserve their tax-related records for a period of six years, with some exceptions detailed in the ordinance.

Key Provisions of the Updated Income Tax Ordinance

The pertinent sections of the updated ordinance, specifically Section 174, shed light on the obligations of taxpayers regarding record-keeping:

Section 174: Records

Sub-Section (1): Unless authorized otherwise by the Commissioner, every taxpayer must maintain accounts, documents, and records in Pakistan, as prescribed by relevant authorities.

Sub-Section (2): The Commissioner holds the authority to disallow or reduce a taxpayer’s claim for a deduction if the taxpayer fails, without reasonable cause, to provide receipts or other records supporting the claimed deduction.

Sub-Section (3): Taxpayers are mandated to keep the accounts and documents specified under this section for six years after the end of the tax year to which they relate. However, in cases where any proceeding is pending before any authority or court, the taxpayer is obligated to maintain records until a final decision is reached in the proceedings. Pending proceedings encompass assessments, appeals, revisions, references, petitions, prosecutions, and any proceedings before an Alternative Dispute Resolution Committee.

Explanation: The term “pending proceedings” encompasses a wide range of legal activities related to taxation, ensuring that records are retained throughout the entire duration of relevant legal processes.

Sub-Section (4): For the purpose of this section, the term “deduction” is defined as any amount debited to trading accounts, manufacturing accounts, receipts and expenses accounts, or profit and loss accounts.

Sub-Section (5): The Commissioner has the authority to mandate any person to install and use an Electronic Tax Register of a prescribed type and description. This is aimed at storing and accessing information related to transactions that have an impact on the tax liability of the individual or entity.

Implications for Taxpayers

These amendments have significant implications for taxpayers, emphasizing the need for meticulous record-keeping to ensure compliance with tax regulations. The extended duration of record retention, now set at six years, aims to facilitate thorough audits and examinations while also promoting transparency in financial dealings.

Taxpayers are urged to familiarize themselves with the updated provisions of the Income Tax Ordinance and take proactive measures to adhere to the new requirements. Failure to maintain the required records may lead to consequences, including potential disallowance of deductions and other penalties.

The FBR’s emphasis on electronic record-keeping highlights the increasing role of technology in tax administration. The move towards Electronic Tax Registers aims to streamline the storage and retrieval of crucial tax-related information, contributing to a more efficient and transparent tax ecosystem in Pakistan.