ISLAMABAD: The Federal Board of Revenue (FBR) is facing a gigantic task to professionally audit over 93,000 tax cases in a span of six months, as it went ahead with its plan without first strengthening the highly understaffed audit wing.
For the tax year 2015, the FBR on Thursday picked as many as 93,277 cases for audit and an overwhelming majority of those was in the category of non-corporate income taxpayers.
The 93,000 audit cases will be handled by an officer cadre in the grade of 17 and 18, in addition to dealing with those pending of the previous years, according to officials in the FBR. At present, there are only 755 sanctioned posts in the grades 17 and 18 and out of them 651 are filled.
Excluding pendency that also runs into thousands, each officer will have to deal with at least 143 cases, which will make it difficult for the tax authorities to achieve the desired results, said the officials. For the tax year 2014, the FBR had picked about 76,000 cases for audit through balloting and most of these cases have still not been taken to the logical conclusion.
Besides FBR’s capacity constraints, the authorities also face challenges in courts, as thousands of people have gone to the courts and gotten stay orders, most of these were pending before Lahore High Court, said the officials. There are cases where the courts have reserved judgments and are not giving decisions, said the officials.
Due to these reasons, the FBR has been facing serious problems in increasing its revenues through collection on demand. “The collection on demand is very important as it reflects departmental efforts in revenue collection,” according to FBR’s fourth quarterly review report for the fiscal year 2015-16.
The results of the previous fiscal year show that the FBR has badly failed in increasing collection on demand. In fiscal year 2015-16, it got Rs87.9 billion through collection on demand, which was Rs27.6 billion or almost 24% less than the previous year, according to the FBR’s documents.
The major reduction was in recovery of arrears where collection on demand dipped by 36%.
The capacity is an issue but there are cases that will consume less time for audit like the audit of salaried persons, said Dr Mohammad Iqbal, spokesman of the FBR. He said that there was no restriction on the FBR officers to conclude the audit within six months.
The tax audit is the core function of any revenue authority and should receive maximum attention, observed the government-constituted Tax Reforms Commission in its final report. It added the prevailing structure of Audit Wing is not geared to undertake the required task. This means a workload of about 400 audits/assessments per officer per year.
“It is not surprising that an overwhelming number of tax audits are conducted in haste and are perfunctory,” noted the TRC. It said that there was a serious lack of capacity to perform any type of meaningful tax audit both at the Head Quarters and at field formations.
The TRC has recommended that a specialised but an independent unit should be created to conduct the audit. The government did not implement this recommendation.
Senate Standing Committee on Finance and Revenue Chairman Senator Saleem Mandviwalla on Saturday showed reservations on the Audit Policy. He said that the so-called audit policy will prove a tool to harass honest taxpayers in the country and due to this audit policy, more people will go out from the tax net.
The business community has also expressed reservations about the new audit policy.
The FBR said that it has selected only 7.5% cases for audit out of 1.074 million total income tax returns filed in tax year 2015. However, some disagree. They said that about 60% of the total returns were excluded due to their low risk parameters.
This leaves about 366,000 returns which were treated as high-risk and subjected to computer balloting. The actual percentage of cases selected for audit in non-corporate sector is about 22%. In corporate sector, 21.5% of the remaining cases were selected.