The FBR has issued ''National Audit Plan 2011-12'' including risk-based audit selection criteria, new audit guidelines and audit policy dated August 30, 2011 to all Chief Commissioners of LTUs and RTOs on Tuesday. According to the ''National Audit Plan 2011-12'', the targets for audit coverage, as against the number of income tax returns received for the tax year 2010 and corresponding tax periods of sales tax and federal excise, has been fixed for the LTUs/RTOs.
The LTUs would select 30 percent of the taxpayers including withholding agents for audit, RTOs seven percent companies cases including withholding agents and RTOs would also pick 5 percent non-company cases, including AOPs and ''business individuals'' and withholding agents. The LTUs/RTOs have also been empowered to select 20 percent of total cases selected for audit on the basis of local knowledge.
An important feature of the ''National Audit Plan 2011-12'' is that the FBR has directed the field formations no agreement should be made with the taxpayers in cases where glaring discrepancies were detected and the assessment of such cases must be made under normal law. The FBR has also assigned target to the field formations for completion of audit under the ''National Audit Plan 2011-12'' by the end of current fiscal year 2011-12.
Under the ''National Audit Plan 2011-12'', the FBR said that the Audit Plan 2011-12 (tax Yyar 2010) has been developed on the basis of past experience. The objective is to gradually enhance the level of voluntary compliance by promoting taxpayers education and bringing uniformity in application of tax laws. Considering past experience and the feedback, it has been decided that the identification of cases for full/detailed audit for the tax year 2010 of income tax and corresponding tax periods for sales tax & federal excise will be made by the respective RTOs/LTUs.
Where the taxpayers are likely to pay all the three inland taxes, audit of income tax, sales tax and FED will be taken up simultaneously, FBR said. Besides, audit of taxpayers paying either of the tax (income tax/sales tax) only shall also be taken up in view of the risk areas and local knowledge of the RTOs/LTUs, ''National Audit Plan 2011-12'' added.
Under ''National Audit Plan 2011-12'', the FBR has also issued audit policy guidelines dated August 30, 2011 for the tax year 2010 and corresponding period of sales tax and FED. According to the audit policy guidelines (2011-12), the audit of the taxpayers is to be made only for the tax year 2010 of income tax and corresponding tax periods of sales tax and federal excise.
If audit of preceding years is considered necessary, then after recording reasons in writing, the trail of audit may be extended with prior approval of the Chief Commissioner. The reasons for initiation of audit and issuance of notice may be communicated to the taxpayers under the signatures of the Commissioners of Inland Revenue in the light of relevant statutes.
The FBR said that the cases for audits shall mainly be selected by the Commissioners based on the risk factors developed by FBR. However, he may also select cases for audit on the basis of his local knowledge. The number of such cases must not exceed 20 percent of the total cases selected for audit.
The FBR''s audit policy guidelines further said that list of cases selected for audit for tax year 2010 and corresponding tax period for ST & FED, may be sent to the Board for record immediately after issuance of notices.
The audit under the Annual Audit Plan 2011-12 is to be finalised during the current financial year. However, field formations may prioritise audit cases based on risk-assessment and initiate cases simultaneously or stepwise, in view of the availability and capacity of audit officers. The audit of withholding tax agents and sales tax refund shall continue as per existing instructions, the FBR maintained.
The audit policy guidelines further said that in case where audit of the taxpayer has already been conducted for the tax year 2009 in respect of income tax, sales tax and federal excise, the same may not be conducted again. However, if in the opinion of Commissioner, audit for the tax year 2010 and corresponding tax periods of sales tax/FED is still necessary, the Chief Commissioner may then ask for permission from the Board explaining the reasons along with copies of the pervious audit reports.
The audit policy guidelines stated that the commissioner shall assign cases for audit to the relevant audit teams to be headed by an officer of appropriate level. Sectoral expertise of team members may also be kept in view.
Assessment in all cases selected for audit where tangible discrepancies have been found remained unexplained or explanation offered by the taxpayers is not considered satisfactory, must be made under normal law and no agreement with the taxpayer is to be made in that respect, the FBR said.
Other key features of the ''National Audit Plan 2011-12'' show that the Sales Tax Audit Handbook containing the industry notes on fourteen different sectors of economy ie sugar, beverages, tobacco and papers boards etc may also be considered while conducting audit.
The FBR has further directed the LTUs/ROs that the audits should be completed expeditiously. The estimated time in man-days should not exceed 10 to 15 days, depending on the extent of business of the taxpayers. The Commissioner may, however, increase or reduce this period as per requirement but within the reasonable bounds, the FBR said.
After consultation with commissioner, the audit authorities must communicate to the taxpayer the discrepancies found in the audit for his explanation before finalising audit report, the FBR pointed out. ''National Audit Plan 2011-12''said that the services of cost accountants (if posted in the formation) must be utilised up to the maximum possible extent to ensure quality of audits. The audit reports may be randomly checked by a committee of competent officers constituted by Chief Commissioner, to look for the quality issues.
Each mid-year audit case should be entered in the Taxpayers Audit Monitoring System (TAMS), developed by PRAL in co-ordination with the Taxpayers'' Audit Wing and installed in the field formations. Audits must not be initiated without first entering the relevant data in the TAMS. Any notice or communications done otherwise or any deviation from this policy guideline would be viewed seriously and Chief Commissioners must take suitable action against the delinquent officers, the FBR stated.
The FBR has further directed the LTUs/RTOs that the Commissioner may not assign more than 4 cases to one auditor/officer at a time. However, in case of shortage of officers and staff more cases may be assigned to individual officers with the prior approval of the Chief Commissioner. The FBR said that the training needs of the audit staff should be taken care of indigenously.
A task force for the overall monitoring and supervision of audit under Annual Audit Plan 2011-12 shall be constituted by Member (IR) under his chairmanship. Among others, this task force will also include a representative from Taxpayers Audit Wing of FBR for policy input, the FBR said.
The procedures and guidelines mentioned in the National Audit Plan/Manual should be strictly followed and the audits are to be conducted professionally and with integrity within the legal framework without creating unnecessary harassment to the taxpayers.
In order to complete the said audits successfully, the role of Chief Commissioners is of paramount importance. They are rightly expected not only to ensure quick disposal of audits but also maintain a respectable level in audit quality. In addition to data entry of cases selected for audit in the TAMS. A monthly report on prescribed format regarding audits initiated, completed and the names of the officers/auditors who conducted the audits along with the amount detected and recovered (if any) may also be sent to the Board by the 5th of the following month, ''National Audit Plan 2011-12'' added.
''National Audit Plan 2011-12'' stated that the FBR is responsible for formulation of fiscal policies including their implementation in the form of levy and collection of federal taxes. In executing this responsibility, FBR enforces tax laws in their true spirit and also provide suitable services to the taxpayers. Accordingly, over a period of time, a system based on self assessment was adopted where there is no physical check over the persons (including industrial concerns) registered under different taxes, except under special circumstances. This system promotes voluntary compliance and documentation and supports self-policing. Audit provides a control mechanism to ascertain compliance under the self-assessment. It allows the tax authorities to examine and verify as to what extent the taxpayers have correctly reported their sales/incomes and determined/deposited their tax liability, as per the existing provision of the relevant tax laws.
''National Audit Plan 2011-12'' further said that the ''Universal Self-Assessment System (USAS)'', introduced since July 2002, was a paradigm shift from conventional mode to a modern system of tax administration. Government of Pakistan reposed full confidence in the taxpayers to declare their true incomes and pay the tax liability accordingly. The objective of USAS was to instil confidence in the taxpayers by minimising contact between them and the tax collectors with a view to promote voluntary compliance and enhance revenue in the long run. Though audit was one of the prerequisites of the USAS, it remained suspended for almost five years with a view to allowing taxpayers to adjust to the new system. The audit was, however, re-initiated two years back. During the initial phase of audit, field units faced numerous difficulties as taxpayers displayed a considerable resentment. In this period, cases were also out-sourced for audit to the Chartered Accountant firms for 3rd party audit. This experience was, however, not very encouraging as a large number of taxpayers went into litigation against the assignment of their cases for audit to the chartered accountants besides showing non-co-operative attitude towards the CAs in conduct of audit. Last year, audit was exclusively conducted and managed by departmental officers, which showed a reasonable progress towards the detection of tax evasion by delinquent taxpayers under the USAS, the ''National Audit Plan 2011-12'' added.