Under the new parameters, the units constantly declaring decrease in income for last three years might also be picked for combined audit of sales tax and income tax. The companies showing decline in sales of over 10 percent on income tax side as compared to last year could be selected for audit.
Sources told Business Recorder on Wednesday that the composite audit of sales tax and income tax would be conducted for the 2007-2008 period. In this connection, the FBR has chalked out 16 criteria for selection of cases for audit. The units/companies in all leading sectors would be picked for audit in cases where 9-10 criteria are matched through cross matching of data or analysis of income tax and sales tax returns.
One of the important criteria for selection of cases for audit included overruling of objections raised by the Sales Tax Automated Refund Repository Computer System' (STARR) for refund claimed over Rs 2 million. The department is empowered to manually overrule objections raised in refund claim by STARR refund processing program.
FOLLOWING ARE THE PARAMETERS FOR SELECTION OF CASES FOR INCOME TAX AND SALES TAX AUDIT: Firstly, imports in Customs differ from declared imports in sales tax and income tax. Secondly, Gross Profit to Sales Ratio (Income Tax) differs with sector ratio, (Cases where gross profit growth is less by 2 percentile points as compared to sectoral growth rate).
Thirdly, net profit to Sales (Income Tax) declared ratio differs with sector ratio (Cases where net profit growth is less by 2 percentile points as compared to sectoral growth rate). Fourthly, Output Tax is different from 16 percent of 21 percent (as the case may be) of Taxable Supplies. Fifthly, Input Tax is different from 16 percent or 21 percent (as the case may be) of Taxable Purchases.
Sixthly, the total Output tax minus input tax differs from Net Payment by 5 percent. Seventhly, the output tax/ Input tax Ratio differs with Sector's Output tax/Input tax Ratio by 5 percentile points. Eight, decline in Sales (Income Tax) is more than 10 percent as of last year. Nine, decline in Supplies (Sales Tax) is more than 10 percent as of last year.
Ten, claim of overruled amount of refund under STARR related checks is more than 50 percent of the claim over Rs 2 million or above overruling pertaining to following STARR related checks: Bill of Entry, invoices, returns, shipping Bills and supplier status.
Other parameters for selection of cases for audit include claim of refund of Rs 2 million or above in Income Tax. Persistent decrease in gross profit over last three years. Similarly, persistent decrease in net profit over last three years is also audit selection criterion.
The criteria also include consistent decrease in output tax/ input tax ratio over last three years, and decrease in proportion of taxable supplies to total supplies in last three years by 10 percent in each year and taxpayers continuously declaring declined income for the last three years.