Syed Shabbar Zaidi, Chairman of the Federal Board of Revenue (FBR), revealed on Friday that a new audit framework is set to be introduced next week, aiming to streamline tax procedures and enhance ease of compliance for taxpayers.
(more…)Tag: audit
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FBR detects huge gap in indirect revenue collection; launches sales tax, federal excise monitoring
ISLAMABAD: Federal Board of Revenue (FBR) has launched monitoring of sales tax and federal excise duty following huge gap detected in indirect revenue collection.
“There appear to be a big gap between actual collection of sales tax / federal excise and its true potential,” the FBR said in a communication sent to all Chief Commissioners of Inland Revenue.
The FBR said that in order to bridge the gap numerous amendments were made in Sales Tax Act, 1990 and Federal Excise Act, 2005 through Finance Act, 2019.
Now administrative measures are required to be strengthened / implement the policy corrections/
The FBR directed the field formations to adopt the following steps in addition to their regular actions:
01. Immediate action on non-files of July and August 2019, especially where the registered persons have filed their sales tax returns for the tax periods of May and June 2019. In addition, desk audit of the registered persons who filed returns for the month of July and August 2019 to be conducted especially those who were previously included in five reduced / zero rated sectors.
02. Monitoring of registered persons paying sales tax under Eighth Schedule of the Sales Tax Act, 1990 especially in those cases where registered persons are supplying at reduced rate.
03. Sectoral analysis/reports must be made by the field formations having jurisdiction over a specific sector, and these reports should be shared with the FBR as well as other field formations having jurisdiction over same sectors. Any success stories be identified.
04. The registered persons dealing in third schedule items should be specifically monitored to ensure the sales tax is being paid on the retail price.
05. Printing of retail price has to be ensured and price lists of all such products have to be obtained from the manufactured/importers filing in Third Schedule to compared with the printed prices of products supplied in market.
06. Monitoring of stock position as on June 30, 2019 filed by the manufacturers/importers of goods which have been included in Third Schedule to ensure that supply is made and tax is charged on retail price.
07. Timely filing of sales tax/federal excise returns along with all the annexure should be ensured. It has been observed that the registered persons do intentionally skip some annexures while filing the returns.
08. Analysis of Annexure J showing the sale, production and stock must be at regular basis.
09. Special focus should be made on those cases which have piled up massive carry forward and are only paying sales tax under Section 8B of the Sales Tax Act, 1990.
10. FBR instructions / SOP for revision of the Sales Tax Returns should be followed in letter and spirit.
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Customs officers authorized business access for audit
KARACHI: Customs officers have been authorized under customs laws to enter business premises to access records necessary for the purpose of audit.
Federal Board of Revenue (FBR) issued Customs Act, 1969 updated up to June 30, 2019 incorporating amendments introduced through Finance Act, 2019.
The Section 26B of the Act authorizes customs officers to access record for the purpose of audit.
Section 26B: Access for the purposes of audit.-
Sub-Section (1): The appropriate officer of Customs, after giving a notice in writing specifying the date of visit, shall have access to business or manufacturing premises, registered office or any other place where any goods, stocks, documents or records relating to the ongoing audit are kept or maintained. Such officer may inspect the goods, stocks, documents, records, data, correspondence, accounts, statements, utility bills, bank statements, information regarding nature and sources of funds or assets with which his business is financed, and any other records or documents required under any Federal or Provincial laws, maintained in any form or mode. Such an officer may take into his custody such documents, records or any part thereof, in such form as he may deem fit, against a signed receipt.
Sub-Section (2): In all cases, except where it would defeat the purpose of the audit, a reasonable advance notice regarding a visit shall be given to the person concerned.
Sub-Section (3): Whosoever causes any obstruction or fails to provide any documents, record, statement etc, as required under subsection (1), with an intention to defeat the purpose of the Act by way of destroying, altering or concealing any books, documents or records required to be maintained under this Act, shall be guilty of an offence under this section.
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FBR bars tax officials from entering taxpayers premises for search, audit
ISLAMABAD: Federal Board of Revenue (FBR) has barred officers of Inland Revenue from entering premises of taxpayers for search and audit purposes.
The FBR issued a notification on Monday and restricted IR officers for invoking Section 175(1) of Income Tax Ordinance, 2001.
The FBR received numerous complaints of taxpayers that tax officials were abusing powers available under this section.
The IR officers were allowed under this section to enter and search premises.—
(1) In order to enforce any provision of this Ordinance (including for the purpose of making an audit of a taxpayer or a survey of persons liable to tax), the Commissioner or any officer authorised in writing by the Commissioner for the purposes of this section –
(a) shall, at all times and without prior notice, have full and free access to any premises, place, accounts, documents or computer;
(b) may stamp, or make an extract or copy of any accounts, documents or computer-stored information to which access is obtained under clause (a);
(c) may impound any accounts or documents and retain them for so long as may be necessary for examination or for the purposes of prosecution;
(d) may, where a hard copy or computer disk of information stored on a computer is not made available, impound and retain the computer for as long as is necessary to copy the information
required; and(e) may make an inventory of any articles found in any premises or place to which access is obtained under clause (a).
The FBR said that in exceptional cases the section may be invoked but with the prior permission of the chief commissioner of Inland Revenue.
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FBR to launch audit of withholding agents
KARACHI: Federal Board of Revenue (FBR) on Monday initiated a program of skill development of its officials to conduct system audit of withholding agents.
A statement said that under the dynamic leadership of Syed Shabbar Zaidi, Chairman, FBR, a new initiative had been taken up by Faheem-ul-Haq, Director General (Withholding) and launched by Dr. Aftab Imam, Chief Commissioner, Corporate Regional Tax Office, Karachi.
This initiative comprises the skill development of officers for system audit of withholding agents to monitor and improve the collection and deposition of withholding tax.
The field officers of all eight field formations of Sindh and Balochistan i.e. Corporate RTO Karachi, Large Taxpayers Units I & II, RTO II & III Karachi, RTO Hyderabad, Quetta and Sukkur; are being trained into the system audit of withholding agents by a renowned chartered accountant.
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Fresh audits of PIA, Pakistan Steel to be conducted for transparency
KARACHI: The federal government will conduct fresh audit of Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) in order to ensure transparency in state-owned enterprises (SOE).
The audits would be initiated for improving SOE governance, transparency and efficiency.
The federal government will make public the outcome of the audits by December 2019, which was agreed by Pakistani authorities with the International Monetary Fund (IMF).
The have approved the privatization of seven companies based on their good privatization prospects. They will follow best practices regarding the process and conditions of privatization to ensure a successful and transparent outcome.
The government will sort SOEs into companies for sale, liquidation, or retaining under state ownership. This has to be done by end-September 2020.
Further the government will submit to parliament a new State-Owned Enterprise Law by end-September 2020 aimed at modernizing and clearly defining the role of the State as owner, regulator, and shareholder of SOEs.
In this context, the recently established holding company to manage SOEs will follow the required governance and transparency principles in line with international best practices.
The IMF will provide technical assistance to support the development of this law and to review ownership arrangements with a view to designing an effective ownership model.
Pakistan has assured the IMF of taking measures for improvement of the economy, which included:
— Commit to not grant further tax amnesties Continuous
— Issue licenses for the track-and-trace system for excises on cigarettes end-September 2019
— Adopt measures to strengthen the effectiveness of the AML/CFT framework to support the country’s efforts to exit end-October 2019 the Financial Action Task Force list of jurisdictions with serious deficiencies
— Submit to parliament, in consultation with IMF staff, amendments to the State Bank of Pakistan Act to address all end-December 2019 recommendations of the new 2019 Safeguards Assessment Report and the 2016 Technical Assistance Report on Central Bank Law Reform.
— Notify the FY 2020 electricity tariff schedule as determined by the regulator end-September 2019
— Prepare a comprehensive circular debt reduction plan in collaboration with international partners (para. 19 MEFP) end-September 2019
— Submit to parliament amendments to the NEPRA Act to (i) ensure full automaticity of the quarterly tariff end-December 2019 adjustments and (ii) eliminate the gap between the regular annual tariff determination and notification by the government
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Commissioners IR empowered to conduct audit of taxpayers every year
KARACHI: Commissioners of Inland Revenue have been empowered to conduct audit of a registered taxpayer every year after removal of restriction through Finance Bill 2019.
Through Finance Act, 2018 a restriction was imposed on offices of the Federal Board of Revenue (FBR) under which they would conduct audit of taxpayers once in every three years.
However, the Finance Bill 2019 proposed to delete the proviso which was introduced through Finance Act last year.
Experts at EY Ford Rhodes Chartered Accountants said that certain taxpayers challenged the audit proceedings under Section 25 where sales tax audit had already been conducted during any of the last three years on the premise that the amendment introduced through the Finance Act, 2018 was procedural change in law and was applicable retrospectively.
Recently, the Honorable Lahore High Court has adjudged the matter in favor of the taxpayer. It appears that the proposed deletion of the third proviso to Section 25 will neutralize the judgment of the Honorable Lahore High Court.
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FBR to target large taxpayers for detailed field audit
ISLAMABAD: Federal Board of Revenue (FBR) to conduct tax audits of large taxpayers, who are selected through an automated risk-based tool.
According to World Bank’s updated report on ‘Pakistan Revenue Mobilization’ said that according disbursement linked Indicators (DLI) the FBR required to conduct tax audits on cases selected through an automated risk-based tool, informed by analysis of integrated data from multiple sources.
It sets targets for detailed field audits of large taxpayers, thereby making an efficient use of resources for the highest impact.
Riskbased audit is essential to deterring tax evasion and increasing compliance, especially for large taxpayers who use complex tax evasion techniques.
It also benefits compliant taxpayers, as it spares them the hassle and cost of ineffective mass audits and reduces the discretion of FBR officials to pick cases for audit.
The World Bank program also required the FBR to implement—through licensed agents—electronic production monitoring for high-risk sectors (e.g., sugar, cement, fertilizer) and electronic tracking of production, distribution, and sale of final products (tobacco, beverages).
It will increase compliance by reducing the risk of under-declaration of output, sales, and corporate profits, the report said.
The DLI related to new taxpayers with taxable incomes/sales identified through automated data sharing and ICT-based BI
(number)will ensures that the FBR will use the new ICT equipment and software that enables the BI and data mining tools to identify unregistered or noncompliant taxpayers.
It also disincentivizes the registration of individuals and firms without taxable income or sales, thereby avoiding inefficient use of FBR resources and negative impacts on micro firms and economically weaker households.
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Sales Tax Act 1990: FBR may appoint special panels for audit
KARACHI: Federal Board of Revenue (FBR) has been empowered under sales tax law to appoint special audit panels for conducting audit of any registered person.
The updated Sales Tax Act, 1990 issued by the FBR, the Section 32A explains the powers of the revenue body for appointment of special audit panels.
Section 32A: Audit by Special Audit Panels
Sub-Section (1): The Board may appoint as many special audit panels as may be necessary, comprising two or more members from the following, –
(a) an officer or officers of Inland Revenue;
(b) a firm of chartered accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961);
(b) a firm of cost and management accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966); or
(d) any other person as directed by the Board,
to conduct audit of a registered person or persons, including audit of refund claims and forensic audit and the scope of such audit shall be determined by the Board or the Commissioner Inland Revenue on a case-to-case basis. In addition, the Board may, where it considers appropriate, also get such audit conducted jointly with similar audits being conducted by provincial administrations of sales tax on services.
Sub-Section (2): Notwithstanding that records of a registered person have been audited by an officer appointed under section 30, the Board or a Commissioner may direct special audit panel appointed under sub-section (1) to audit the records of any registered person.
Sub-Section (3): Every member of special audit panel appointed under sub-section (1), shall have the powers of an officer of Inland Revenue under sections 25, 37 and 38.
Sub-Section (4): Each special audit panel shall be headed by a chairman who shall be an officer of Inland Revenue.
Sub-Section (5): If any one member of the special audit panel, other than the chairman, is absent from conducting an audit, the proceedings of the audit may continue and the audit conducted by the special audit panel shall not be invalid or be called in question merely on the ground of such absence.
Sub-Section (6): The Board may prescribe rules in respect of constitution, procedure and working of special audit panel.
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Sales Tax Act 1990: tax officials authorized to access record
KARACHI: The sales tax law has authorized tax officials to access record maintain by registered persons for the purpose of investigation and audit.
According to updated Sales Tax Act, 1990 issued by the Federal Board of Revenue (FBR), the Section 25 explained maintenance of record by taxpayer and authority of tax department to access the record and conduct audit.
Section 25: Access to record, documents, etc.
Sub-Section (1): A person who is required to maintain any record or documents under this Act or any other law shall, as and when required by Commissioner, produce record or documents which are in his possession or control or in the possession or control of his agent; and where such record or documents have been kept on electronic data, he shall allow access to the officer of Inland Revenue authorized by the Commissioner and use of any machine on which such data is kept.
Sub-Section (2): The officer of Inland Revenue authorized by the Commissioner, on the basis of the record, obtained under sub-section (1), may, once in a year, conduct audit:
Provided that in case the Commissioner has information or sufficient evidence showing that such registered person is involved in tax fraud or evasion of tax, he may authorize an officer of Inland Revenue, not below the rank of Assistant Commissioner, to conduct an inquiry or investigation under section 38:
Provided further that nothing in this sub-section, shall bar the officer of Inland Revenue from conducting audit of the records of the registered person if the same were earlier audited by the office of the Auditor-General of Pakistan:
Provided also that audit under this section shall be conducted only once in every three years.
Sub-Section (3): After completion of Audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person’s explanation on all the issues raised in the audit shall pass an order under section (11).
Sub-Section (4): Omitted
Sub-Section (5): Notwithstanding the penalties prescribed in section 33, if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge voluntarily, whenever it comes to his notice, before receipt of notice of audit, no penalty shall be recovered from him:
Provided if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge during the audit, or at any time before issuance of show cause notice he may deposit the evaded amount of tax, default surcharge under section 34, and twenty five per cent of the penalty payable under section 33:
Provided further that if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge after issuance of show cause notice, he shall deposit the evaded amount of tax, default surcharge under section 34, and full amount of the penalty payable under section 33 and thereafter, the show cause notice, shall stand abated.
Explanation.– For the purpose of sections 25, 38, 38A, 38B and 45A and for removal of doubt, it is declared that the powers of the Board, Commissioner or officer of Inland Revenue under these sections are independent of the powers of the Board under section 72B and nothing contained in section 72B restricts the powers of the Board, Commissioner or Officer of Inland revenue to have access to premises, stocks, accounts, records, etc. under these sections or to conduct audit under these sections.