ISLAMABAD: Federal Board of Revenue (FBR) has decided to authorize Commissioner Inland Revenue to select cases for audit under relevant provisions of tax laws.
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FBR implements functional system for big taxpayers
ISLAMABAD: Federal Board of Revenue (FBR) has implemented a functional system separating functions of enforcement, audit and legal for big taxpayers.
This functional system has only been introduced at the large taxpayers units (LTUs) where FBR makes assessment of taxpayers with high annual turnover.
In order to implement the FBR has issued jurisdiction orders for LTUs Karachi, Lahore and Islamabad.
According to an order issued on August 05, 2020 the FBR re-designated the jurisdiction of Chief Commissioner Inland Revenue and Commissioner Inland Revenue of LTU Karachi.
The functional system has been implemented from August 10, 2020.
The Commissioner Audit shall have powers and functions included:
Income Tax:
(a) Calling for information and audit of cases under Part VIII of chapter X, assessment, amendment of assessment and agreed assessment under Part II of Chapter X, charge of tax under Chapter II, computation of taxable income and total income under Chapter III and computation of taxable income under Part II of Chapter X arising out of such orders, rectification of orders related to audit and exercise of powers and functions under Section 175 and 176 or under any specific provision of law and rules provided in the Income Tax Ordinance, 2001 and Schedules thereto in respect of audit and assessment;
(b) assessment under Section 143 and 144;
(c) Computation of income chargeable to tax, determination of tax payable thereon, allowing credit of the tax already paid or of the determined refunds while exercising powers and performing function and mentioned at (a) and (b).
(d) Best judgment assessment under Section 121 read with sub section 10 of Section 177 in respect of cases under audit;
(e) Exercising powers to determine income under ‘Anti-Avoidance’ provisions contained in Chapter VIII;
(f) Revision of assessment under Section 122A in respect of audit related cases;
(g) imposition of penalty under Part X of Chapter X against defaulters in respect of cases under audit;
(h) Perform any other functions in determining and computing income chargeable to tax and correct tax payable under the said Ordinance and Rules made thereunder;
(i) To process / finalize complaints in respect of existing taxpayers’ cases;
(j) Implementation of audit planning and audit strategy in accordance with audit guidelines and audit manuals developed by FBR or Member (Taxpayers’ Audit);
(k) To grant approval for revision of return of income and wealth statements;
(l) Disposal of external / internal audit paras related to audit;
(m) Giving effect to orders of the appellate authorities / FTO orders related to audit;
(n) Any other audit functions assigned the Chief Commissioner Inland Revenue or FBR for achieving the purpose of the Income Tax Ordinance, 2001 & Rules and Procedures framed thereunder.
Sales Tax:
(a) Audit and assessment of registered persons;
(b) Risk based audit through profiling and analysis;
(c) Recovery of un-disputed liability detected during audit;
(d) Monitoring of audit schedule, etc.;
(e) Maintenance and analysis of audit records and audit related database;
(f) Post refund audit and scrutiny;
(g) Deregistration audit;
(h) Investigative audit in cases related for audit under Section 38 of the Sales Tax Act, 1990, and exercise of powers under Section 38A and 38B in respect of cases under audit;
(i) Implementation of audit planning and audit strategy in accordance with audit guidelines and audit manuals developed by FBR or Member (Taxpayers’ Audit);
(j) Disposal of external/internal audit paras related to audit;
(k) Granting approval for the revision of returns;
(l) Grant of extension in time/condonation of delay in respect of audit related functions as per the relevant provisions of Sales Tax Act and Rules made thereunder;
(m) Exercise of powers under Section 38 regarding functions/assignments related to cases selected for audit;
(n) Exercise of powers under section 45A(4) in respect of the cases related to audit functions;
(o) Rectification of mistakes in respect of orders relating to audit functions;
(p) Giving effect to orders of the appellate authorities/FTO orders relating to audit;
(q) Any other audit function given by the Chief Commissioner Inland Revenue or FBR for achieving the purpose of Sales Tax Act, 1990 and Rules and Procedure framed thereunder.
Federal Excise:
(a) Audit and assessment of registered persons;
(b) Risk based audit through profiling and analysis;
(c) Maintenance and analysis of audit records and audit related database;
(d) Implementation of audit planning and audit strategy in accordance with audit guidelines and audit manuals developed by FBR or Member (Taxpayers’ Audit);
(f) Disposal of external / internal audit paras related to audit;
(g) Granting approval for the revision of return;
(h) Grant of extension in time / condonation of delay in respect of audit related functions as per the relevant provisions of Federal Excise Act 2005 and Rules made thereunder;
(i) Rectification of mistakes in respect of orders relating to audit functions;
(j) Exercise of powers and chapter IV of FED Act, 2005 regarding functions/assignments related to audit to the extent of conducting search of a premises;
(k) Any other audit function given by Chief Commissioner Inland Revenue or FBR for achieving the purpose of Federal Excise Act, 2005 and Rules and procedures framed thereunder.
The Commissioner Enforcement shall have powers and functions included:
Income Tax:
(a) Enforcement, recovery and collection of income tax;
(b) Ensuring and enforcing compliance of the statutory provisions regarding filing of statutory returns, statements, furnishing of information, maintenance of prescribed accounts, documents and records; imposition of penalty and taking other action under the law against non-compliant taxpayers;
(c) Best judgment assessment under Section 121, except in cases under audit;
(d) Provisional Assessment under the Tenth Schedule;
(e) Monitoring of deduction, collection and payment of tax at source by withholding/collecting agents; issuance of exemption/lower rate certificates and charging of tax on defaulting withholding/collecting agents;
(f) Passing orders under Division IV of Part V of Chapter X of the Income Tax Ordinance, 2001;
(g) Imposition of penalty and charging default surcharge for non-filing of statutory statements and default of withholding/payment of withholding taxes;
(h) To make any other related action under the provisions of the Income Tax Ordinance, 2001 regarding withholding taxes;
(i) Effect collection and recovery of tax under Part-IV and V of Chapter X;
(j) Determine and issue refunds under Part-VI of Chapter-X including refund adjustments;
(k) Rectification of mistakes in respect of orders relating to the enforcement functions;
(l) Giving effect to orders of the appellate authorities / FTOs orders relating to enforcement;
(m) Rectification of cases not related to audit;
(n) Launching prosecution under Part-XI of Chapter-X;
(o) Disposal of international and external audit observation / paras other than those related to audit and assessment;
(p) Imposition of penalty under Part-X of Chapter-X except the cases under audit;
(q) Revision of assessment under Section 122A in respect of enforcement related cases;
(r) Grant of extension in filing of returns/statements;
(s) Any other powers and functions not specifically assigned to any other commissioner Inland Revenue;
(t) Exercise powers under Section 175 and 176 in respect of cases other than cases under audit;
(u) Any other enforcement related powers and functions assigned by the Chief Commissioner Inland Revenue or FBR for achieving the purpose of the Income Tax Ordinance, 2001 and Rules and procedures framed thereunder.
Sales Tax:
(a) Enforcement and collection of sales tax;
(b) Recovery action under section 11 of the Sales Tax Act, 1990 against non-filers and short-filers, and any other auction under Section 11 for enforcement related functions, except the cases under audit;
(c) Suspension, black listing and deregistration of the registered persons;
(d) Enforcement of returns;
(e) Sales Tax registration;
(f) Processing and sanctioning of refund claims filed under Section 10 and 66 of the Sales Tax Act, 1990;
(g) Reporting of Revenues;
(h) Disposal of international and external audit observations/paras related to enforcement functions;
(i) Disposal of CREST discrepancies;
(j) Industrial Surveys;
(k) Powers and functions regarding investigation, prosecution and arrest of a person;
(l) Implementation of enforcement planning and strategy in accordance with guidelines developed by the FBR;
(m) Extension in time/condonation of delay regarding filing of returns/refund claims;
(n) Authorization of zero rated/concessionary imports and local purchases;
(o) Exercise of powers under Section 38, 38A and 38B regarding functions/assignments related to enforcement;
(p) Exercise of powers under section 40B and 40C;
(q) Exercise of powers under section 45A(4) in respect of cases related to enforcement functions;
(r) Giving effect to orders of appellate authorities / FTO orders relating to enforcement;
(s) Rectification of mistakes in respect of orders relating to enforcement functions;
(t) Any other powers and functions not specifically assigned to any other commissioner Inland Revenue;
(u) Any other enforcement related power function assigned by the Chief Commissioner Inland Revenue or FBR for achieving the purpose of Sales Tax Act 1990 and Rules made there under.
Federal Excise:
(a) Enforcement and Collection of Federal Excise;
(b) Processing and sanctioning of refund claims filed under Federal Excise Act 2005;
(c) Enforcement of returns and registration of persons liable to be registered;
(d) Reporting of Revenue;
(e) Disposal of internal and external audit observations/paras/Crest discrepancies related to enforcement functions;
(f) Implementation of enforcement planning and strategy in accordance with guidelines developed by the FBR or Member (Enforcement and Accounting);
(g) Extension in time / condonation of delay for filing of return;
(h) Exercise of powers under chapter IV of the FED Act 2005 with the exception of the powers and functions assigned to Commissioners Inland Revenue Audit.
(i) Rectification of mistakes in respect of orders relating to enforcement functions;
(j) Any other powers and functions not specifically assigned to any other Commissioner Inland Revenue;
(k) Any other enforcement related power and function assigned by the Chief Commissioner Inland Revenue or FBR for achieving the purpose of Federal Excise Act, 2005 and Rules and Procedures framed thereunder.
The Commissioner Legal shall have powers and functions included:
Income Tax:
(a) Defending appeals before Commissioner Inland Revenue (Appeals), instituting and defending departmental appeals and references under Part-III of Chapter X, prosecution of cases instituted under any provision of the Income Tax Ordinance, 2001, filing and pursuing CPLAs in the Supreme Court of Pakistan, and representing the department in the process of liquidation;
(b) Defending complaints before Federal Tax Ombudsman (FTO);
(c) File/defend presentations before the President of Pakistan;
(d) Appoint legal advisors and assign cases, wherever required, for representation before appellate fora;
(e) Grant recognition/approval to provident funds, superannuation funds, and gratuity funds under the Sixth Schedule; and exercise all the powers under the said Schedule;
(f) Grand of approval to Non-Profit Organizations under Section 2(36).
(g) Any other legal functions assigned by the Chief Commissioner Inland Revenue or the FBR for achieving the purposes of Income Tax Ordinance, 2001 and Rules made thereunder.
Sales Tax:
(a) Preparation, institution, follow up and defense of cases before Supreme Court, High Court, Appellate Tribunal;
(b) Preparation, follow-up and defense of cases before Commissioner (Appeals) and Alternative Dispute Resolution Committee;
(c) Matters relating to Federal Tax Ombudsman (FTO); and
(d) Any other legal function assigned by the Chief Commissioner Inland Revenue or the FBR for achieving the purpose of Sales Tax Act, 1990 and rules made thereunder.
Federal Excise:
(a) Preparation, institution, follow up and defense of cases before Supreme Court, High Court, Appellate Tribunal;
(b) Preparation, follow-up and defense of cases before Commissioner (Appeals) and Alternative Dispute Resolution Committee;
(c) Matters relating to Federal Tax Ombudsman (FTO); and
(d) Any other legal function assigned by the Chief Commissioner Inland Revenue or the FBR for achieving the purpose of FED Act 2005 and rules made thereunder.
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FBR urged to allow time extension making audit notice compliance
KARACHI: Pakistan Tax Bar Association (PTBA) has urged the tax authorities to allow time extension to taxpayers for making compliance in audit notices of tax year 2014.
In a letter sent to Ms. Nausheen Javaid Amjad, Chairperson, Federal Board of Revenue (FBR) on Friday, the PTBA urged to grant an extension of time under Section 214A of the Income Tax Ordinance, 2001 to complete the amendment of assessment proceedings for the tax year 2014 in order to provide sufficient time to taxpayers for compliance of such notices issued by the department in the best possible interest of the taxpayers at large.
The apex tax bar said that it had been brought to the notice that the officers of Inland Revenue had initiated amendment of assessment proceedings by issuing various notices under Section 177/174/176/122 of the Ordinance, ibid in the last month of June 2020 to the taxpayers for the year 2014 as the said tax year is going to be time barred as on June 30, 2020 under Section 122(2) of the Income Tax Ordinance, 2001.
Furthermore, the said notice have been issued with a short margin of only 2-3 days for compliance (which is not possible) and the officers are also reluctant to allow sufficient time to the taxpayers and their respected authorized representatives to respond against the notices in order to finalize it till June 30, 2020 to achieve budgetary targets by the end of this month.
The tax bar said: “This, once again, put the credibility of the FBR officials in question as there were six years available to those officers to complete the assessment proceedings after filing of income tax returns for the tax year 2014 but the department has been slept over all this time and now suddenly awake just to show efficiency by issuing such vague notices in order to complete the proceedings before it gets time barred.”
The PTBA informed the FBR chairperson that it had been held in a number of judgments as well as many directions had been given from time to time by the board to the officials to provide sufficient time/opportunity to the taxpayers to defend their case and provide sufficient explanation before an adverse order is passed against them. “But this has not been adhered to in the prevailing situation as the officers of FBR are busy in achieving their budgetary targets as well as to show their efficiency at the end of the financial year.”
Hence, such notices issued by the department not only torment the taxpayers but also lacks confidence of the taxpayers / consultants upon the department, it added.
“Nevertheless, the current pandemic situation of COVID-19 prevailing all over the country where many of the businesses and areas are still in lockdown situation, the taxpayers are unable to reach their as well as FBR offices to respond such notices issued by the department in such a short compliance period.”
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Tax officials’ power to select income tax return for audit should be withdrawn
Tax practitioners have called for a significant reform in the income tax audit process, urging that the Federal Board of Revenue (FBR) alone should have the authority to select income tax returns for audit, withdrawing this power from the commissioners.
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FBR should shun multiple tax audits
KARACHI: Business community has advised Federal Board of Revenue (FBR) to shun conducting multiple audits of a taxpayer in a year in order to ensure ease of doing business.
In its proposals for budget 2020/2021 submitted to the FBR, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that registered Tax payers receive notices of multiple audits in a year such as Income Tax audit under Section 177 of the Income Tax Ordinance 2001, Withholding Tax audit under Section 161 of the Income Tax Ordinance 2001; Sales Tax audit under Section 25 of the Sales Tax Act 1990.
Moreover, the taxpayers also receive multiple notices of amendments in assessments under Section 122 of the Income Tax Ordinance 2001 and under Section 111 of the Income Tax Ordinance 2001 to explain sources.
The multiplicity of audit of a single taxpayer in a single year is against the concept of ease of doing business and creating unnecessary problems for tax payers.
The FPCCI recommended that multiplicity of audits in a single year be done away with and replaced with the concept of composite audit of registered taxpayers.
Further, it is suggested that new audit parameters should be enforced after consultation with all stakeholders.
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Audit cases should be assigned to tax officials on basis of skills
KARACHI: Tax managers have suggested that audit cases should be assigned to tax officials on the basis of skills and experience.
“Cases should be assigned on the basis of skill and experience of the officers as it reduces no change monitoring and enhance productivity,” according to an official document on monitoring of withholding taxes.
If a pre-monitoring analysis is conducted by the officers, they will be in a position to ascertain the true potential of specific cases, sectors and their overall impact on the revenue generating activities of the department.
For this purpose, they should examine:
— nature and extent of business entities;
— past compliance behaviour, tax fraud activities;
— group activities as to compliance of tax laws;
— results of previous monitoring and tax audits by the Income Tax and the Sales Tax departments;
— overall declarations and amended Returns, etc, penalties, refunds and corporate status can give a good guidance for selection or otherwise of a case for detailed monitoring of withholding taxes;
— Past information about surveys and special/sectoral studies can also be helpful;
— Taxpayer’s complete particulars are important for follow-up;
For the sake of transparency, it is always good for the tax department to state the following;
— Scope of the monitoring process;
— Process to be followed by the departmental officers for monitoring of a specific case;
— The taxpayers should be informed as to how they will be contacted;
— How the case is to be discussed and who will represent the department;
— How the record will be examined;
— How to convey the findings of the examination/discussions on the cases to the taxpayers;
— Mechanism for submitting replies by the taxpayers;
— Writing the reports about monitoring; and
— To determine future course of action under the relevant provisions of law in the light of the findings of the report, wherever requiring further action.
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FBR urged to withdraw date extension notification for audit completion
KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday urged the Federal Board of Revenue (FBR) to withdraw a notification issued allowing tax offices to complete audit related to past year.
In a letter to FBR Chairperson, the KTBA pointed out selection of audit through Section 214C of Income Tax Ordinance, 2001 and said that courts had ordered the tax authorities to complete audit of selected cases within the year for which year a case was selected.
The tax bar said that tax offices had intimated taxpayers that the audit wing of the FBR condoned the time limit for completing audit in 459 cases related to tax year 2014 up to June 30, 2020.
The tax bar pointed out that as per Audit Policy 2015 which governed audit cases selected for tax year 2014 had clearly mentioned: “the cases selected during a financial year would be disposed of during the same year.”
It is further stated that the audit policy 2015 was challenged in the Lahore High Court in 2017 and the court allowed the completion of audit time limit up to June 30, 2019. An intra court appeal was filed against the judgment, where a division bench extended the cut-off date to December 31, 2019.
The KTBA further highlighted a reported judgment Supreme Court of Pakistan in which the apex court observed: “… while an extension could be granted by the FBR for conducting and audit, the same should be supported by application of mind, appropriate reasoning and could not be granted casually, repeatedly or as a matter of routine.”
The tax bar said: “FBR has allowed the time period for completing the audit, all by itself, till June 30, 2020, through its latest circular … The extension, which has been issued completely on its own motion by the FBR, has been give to all the pending 459 cases audits of tax offices in Karachi.”
It said that the extension is in total contravention of the findings and directions of the Supreme Court, which laid down the principles.
It further said that extension granted in the 459 cases will open the floodgate of litigations against the State.
The KTBA said that the tax bar associations in the country should be taken into the folds before any decision of the sort are taken, which are prone to become contentious and consequently subject of litigation.
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FBR conducts audit of all refund cases
ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday said that the tax machinery conducts audit of all refund cases.
“It is baseless to assume that FBR does not conduct the scrutiny. The processing of the case may take time but it is certain that all refund cases are audited,” the FBR said.
In this regard, the FBR issued a clarification on the news aired on electronic media about the issuance of fake refunds.
FBR has explained that two processes are being used to deal with refund cases.
The first is the processing of refunds through automated system for the exporters.
In this process, the audit of the refund is conducted after the issuance of refunds.
The other system of refund issuance has been devised for the taxpayers not associated with the export sector.
The refunds issued through this mode are called the “carry forward refunds.” Such refunds are issued once in a year. The audit is conducted before the issuance of such refunds.
FBR has clarified that taxpayers involved in presenting the wrong invoices are dealt strictly and recovery is made from them.
Moreover, penalty and default surcharge is also imposed to curb this practice.
Sometimes, the audit process of refunds takes longer period of time which may cause problem of liquidity for the exporter, in case of delayed issuance of refunds.
To avert liquidity crunch for the businesses, the refunds are issued and the scrutiny is conducted afterwards.
There are certain inbuilt checks within the system to match the input claim by one person with output claim by another person.
To avoid revenue loss, FBR has almost resolved the issue of fake invoices. Sometimes, it becomes a little cumbersome and lengthy to check the flying invoices but the scrutiny is conducted in all the cases. FBR has computer analytics system of CREST.
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FBR empowered for closure of automatic audit selection
ISLAMABAD: Federal Board of Revenue (FBR) has been empowered to conclude cases which were automatic selected for audit.
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Post refund divisions to be set up at RTOs/LTUs to audit claims
ISLAMABAD: Federal Board of Revenue (FBR) has decided to audit sales tax refunds by establishing ‘refund division’ at all Regional Tax Offices (RTOs) and Large Taxpayers Units (LTUs).
According to amended Sales Tax Rules, 2006 issued by the FBR the Rule 27 has been amended to establish Centralized Sales Tax Refund Office (CSTRO), Refund Division and posting of officers.
The FBR said that a CSTRO would be established under the Board for centralized payment of all refund amounts as due under the Act.
Further a Refund Division will be established, which will be headed by an officer, not below the rank of Assistant Commissioner, herein after referred to as officer-in-charge, duly supported by audit staff referred to as processing officers, to examine, process and settle the refund claims filed under these rules.
Further Post Refund Division in each RTO or LTU shall be established, which will be headed by an officer not below the rank of an Assistant Commissioner to audit the refund claims processed and sanctioned by the Refund Division.
The FBR said that that scrutiny of the refund claims processed or sanctioned after the June 30, 2014 shall be carried out on the basis of risk-based selection through computerized Post Refund Scrutiny (PRS):
Provided that where the Commissioner Inland Revenue has reasons to believe that a registered person, whose refund claim was processed or sanctioned, has been paid refund which was not admissible to him, he may direct through order in writing to conduct computerized Post Refund Scrutiny (PRS) of such claim.
Post refund audit of refund claims process through RMS will be the responsibility of the audit Divisions of respective RTO/LTU.
The registered person claiming refund under these rules shall maintain and keep all the paper documents relating to the refund claim, such as invoices, credit notes, debit notes, goods declarations, bank credit advice, etc. in his office.