ISLAMABAD: The Federal Board of Revenue (FBR) has successfully collected a significant amount of Rs53 billion during the tax year 2024 through the automatic closure of income tax audits. This recovery was made possible under Section 214E of the Income Tax Ordinance, 2001, a special provision designed to streamline the resolution of pending audit cases.
According to official figures obtained, the amount collected under Section 214E specifically pertains to audits that were selected under the now-omitted Section 214D. This mechanism offers taxpayers an opportunity to automatically conclude their pending audits, provided they meet certain conditions. In comparison, the FBR had managed to collect a higher amount of Rs68 billion through the same provision during the previous tax year.
How the Automatic Audit Closure Works
Section 214E facilitates the closure of tax audits that were initiated through an automatic selection process under the repealed Section 214D. To qualify for this automatic closure, taxpayers must fulfill specific criteria, including:
The taxpayer having been selected for audit under the omitted Section 214D.
The absence of a notice issued under Section 122 (which pertains to amendments of assessments).
A voluntary revision of the tax return by the taxpayer, accompanied by the payment of an additional 25% tax.
In cases where no tax was originally payable, a payment of 2% of the turnover or applicable penalties was required.
The FBR has clarified that these conditions do not apply to individuals whose income consists solely of salary or income subject to final taxation, such as those covered under Sections 5 to 7B of the Ordinance. This distinction ensures that the relief of automatic closure is targeted at specific categories of taxpayers.
Preserving FBR’s Authority and Promoting Compliance
The law further stipulates that while audits initiated under the automatic selection process of Section 214D may be closed automatically, those based on “definite information” or initiated under Section 177 (selection for audit) or 214C (computer-assisted audit selection) will proceed under normal audit procedures. This provision safeguards the FBR’s authority to conduct risk-based and information-driven audits when necessary.
The prescribed procedures under this mechanism also allow the FBR the option to accept the declared income of the taxpayer, contingent upon specific compliance conditions being met.
The recovery of Rs53 billion through this method not only represents a significant achievement for the FBR in clearing its backlog of audit cases but also aligns with its broader strategy. This approach aims to improve tax compliance through a blend of policy facilitation and efficient resolution, rather than relying solely on aggressive enforcement measures. The automatic closure option has largely been welcomed by taxpayers as an effective way to resolve older audit cases amicably and efficiently.
