Budget Proposals 2017/2018: FPCCI suggests changes to sales tax audit selection

KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has said the Federal Board of Revenue (FBR) upon specific proposal of the business community has inserted provisions of section 72-B to ensure selection of audit on parametric basis through computer balloting.
“The field formation however adamant to exercise their powers and selects audit u/s 25 through their own whims,” it said and added even the selection u/s 72-B in past does not made in accordance with law and resultantly remains challenged in the court of law over the last many years.
The FPCCI said that the Lahore High Court has recently passed detailed judgment in writ petition # 32597/2015 in which it is observed: “To sum up the discussion, supra, it is held that state has a right to audit; corresponding to taxpayer’s duty to make correct declarations and comply with the statutory commands under three Federal Taxing Statutes. Selection for and conduct of audit is not ex facie detrimental to the interest of taxpayer, however, to exercise such powers; the discretion needs to be structured by farming rules and issuance of policies for ensuring consistency and certainty of procedures; transparency and fairness.”
The FPCCI said that there is not faith on entire audit process of the FBR and field formation due to unchecked discretionary powers and cause menace of corruption.
The FPCCI recommended that FBR shall rectify the defects pointed out by the Lahore High Court (LHC) in the impugned Audit Policy 2015 and in the policies to be issued in future by incorporating the following proposals in the Rules or Audit Policies.
It is suggested that a taxpayer selected and audited in preceding five tax years / period shall not be selected and audited without giving any valid reasons for such selection. FBR shall enhance its capacity to audit a selected taxpayer for last five years to give respite from consecutive selections.
Audit, being administrative proceedings, shall complete on issuance of Audit Report. If audit is not completed within the given time frame, the selection shall be deemed to have been dropped. After issuance of Audit Report; adjudication proceedings shall be carried out by some other taxation officer to satisfy command of the constitution under Article 10A.
After selection for audit, any demand for increase in payable tax to drop audit proceedings is not only against the scope and spirit of audit but is in violation of the provisions relating to audit under the Federal Taxing Statutes as well.
The audit shall be conducted in accordance with “Income Tax Manual Part V” and Sales Tax Audit Hand Book” and such procedure for conduct of audit shall be incorporated in the Rules for selection and Conduct of Audit.
There should be remedy against any grievance regarding selection or conduct of audit, under Section 7 of FBR Act, 2007 shall, henceforth, be read as part of every Audit Policy and its procedure is directed to be incorporated in the Rules for Selection and Conduct of Audit.
There should be no manual selection be done. The selection should only be made through parametric computer balloting and powers to manual selection by field formation be restricted at all.

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