Internal Resources Division of the finance ministry has set the number of income tax files for field audit limited to 25,000 for the last fiscal year 2016-2017 to save the taxpayers from harassment by tax officials.
The IRD in a recent meeting decided to fix the tax files in number for audit instead of allowing a certain per cent of total returns, which was in practice until last year, officials have said
Traditionally, tax officials select roughly two to four per cent of tax files submitted under universal self-assessment method for field audits, based on risks of tax evasion, with prior approval of the revenue board.
In the process, field offices primarily select a number of tax files based on a guideline set by the NBR for audit and send those to the revenue board for approval.
The board approves the tax files after further scrutiny and then the field offices conduct audit on the finally approved tax files.
Taxpayers and tax practitioners often allege that staff and officials of the field level tax offices harass them, often with the threat that their tax files will be selected for audit.
On various occasions, they have complained to the revenue board that dishonest officials try to reap illegal financial benefits from the taxpayers by including or excluding their tax files in the primary selection list for audit.
Tax officials can exploit the field audit system as there are no number restrictions and they can select up to four per cent of the tax files.
Considering the issues, the IRD decided to fix the number this year at 25,000, or 1.96 per cent of 12,71,595 tax returns submitted by the taxpayers, according to officials.
According to the data, the revenue board finally approved some 24,000 returns or 2.5 per cent for audit against the total returns of 9,64,778 in FY 2015-2016.
In FY 2013-2014, tax officials audited some 32,344 tax files which are 3.63 per cent of the total returns for that year.
According to the income tax law, officials generally scrutinise all the income tax returns submitted under the
universal self-assessment scheme to prevent misuse of the opportunity and arithmetic errors in tax calculation.
Later, they conducted field audit which is known as extensive audit for detecting tax evasion by individual and company taxpayers.
Currently, more than 95 per cent of taxpayers submit income tax returns under the provision of universal self-assessment and the remaining taxpayers submit returns following general and self-assessment methods.
According to the existing law, tax officials do not audit such returns if the taxpayers show 20 per cent higher income than the previous year and meet some conditions including providing evidences in support of income exempted from paying tax and not claiming refund.
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