ISLAMABAD: The Federal Board of Revenue (FBR) is set to embark on a comprehensive audit initiative designed to encompass both income tax and sales tax registered individuals and entities. This significant undertaking is aimed at strengthening the tax compliance landscape across the country.
Initiative scope & strategy
According to media reports and announcements from the FBR, the plan involves conducting a variety of audit types. These include desk audits, more in-depth investigative audits, forensic audits focusing on potential fraud, and traditional field audits.
This multi-pronged strategy is being implemented as a key component of the FBR’s broader Inland Revenue Transformation Plan, with the goal of enhancing both the quality and overall capacity of the FBR’s audit functions.
Collaboration with external experts
A crucial aspect of this new audit drive is the integration of external expertise. The FBR has engaged external auditors and industry experts to work alongside its internal teams. Specific job descriptions, performance metrics, and review mechanisms have reportedly been detailed for these hired professionals, outlining their expected contributions and standards.
The FBR has laid out specific key performance indicators (KPIs) that will be used to evaluate the external auditors. These metrics are weighted to prioritize different aspects of their work: productivity will account for 40% of their evaluation, the quality of the audits conducted will make up 30%, and behavioural factors such as attention to detail, accountability, and discipline will contribute the remaining 30%.
Auditors involved in the initiative will play a vital role in assisting FBR officers. Their tasks will include identifying instances of non-compliance, discrepancies within tax filings, and areas presenting higher risk for evasion. They are expected to support the FBR in analyzing taxpayer declarations and reconciling data across different tax heads, including income tax, sales tax, federal excise, and customs, to identify potential fraud or compliance issues.
Ensuring compliance with standards
A core part of the auditors’ mandate will be to examine financial records, such as tax returns, financial statements, and accounting books, to ensure strict adherence to relevant national and international standards. This includes compliance with legislation such as the Companies Act, the Income Tax Ordinance, and the Sales Tax Act.
Furthermore, the auditors will utilize financial ratios and industry benchmarks to pinpoint discrepancies and potential tax fraud more effectively. Their duties also involve assisting in the verification of claimed expenses, examining tax credits and claims, and preparing detailed reports concerning exemptions and efforts made towards tax reduction by taxpayers.
Through this comprehensive initiative and the strategic collaboration with external auditors, the FBR aims to significantly improve the effectiveness and efficiency of its audit processes. The overarching goal is to achieve better tax compliance across the country, ultimately leading to an increase in national tax revenue.
