Pakistan’s salaried class exempted from tax audit

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ISLAMABAD: The government on Thursday announced that the salaried class would be completely exempted from tax audit and companies would be picked only once in three years provided they fall on the risk parameters determined for selecting audit cases.

While selecting about 45,000 new cases for audit through computer balloting, Special Assistant to Prime Minister on Revenue Haroon Akhtar announced that those taxpayers would be exempt from audit who came under the final and presumptive tax regime. The balloting was held for tax year 2016.

Against the government’s decision to pick 7.5% of return filers for tax audit, the Federal Board of Revenue (FBR) selected less than 4%.

Akhtar revealed that the General Headquarters (GHQ) was proactively cooperating with the FBR to bring personnel of armed forces to the tax net. “The GHQ wants its personnel to be law-abiding citizens,” remarked Akhtar, who is son of former ISI chief General Akhtar Abdul Rehman.

With the selection of new audit cases, the total outstanding cases have inched closer to one million, a staggering number as the FBR does not have the capacity to handle this backlog.

Akhtar said the government was considering scrapping Section 214-D of the Income Tax Ordinance, which was the main reason behind the majority of over 925,000 pending cases.

According to the section, if a taxpayer does not file income tax return, he is automatically picked for audit. However, the FBR has failed to go after these people as it does not have the capacity to conduct the audit.

Akhtar said the salaried people had been excluded from the audit. Similarly, companies will be picked for the audit only once in three years.

“The FBR wants to focus only on the areas that have the potential to pay tax,” said the PM aide.

Akhtar said the government had delivered on all promises made with the business community over the past five years.

“The business community asked us for amnesty, we gave them the amnesty scheme; they asked us for lowering tax rates, we did that; in some cases, we gave them even more relief than what they had asked for and the entire purpose of facilitating the business community was to foster business activities, promote growth and generate more revenues in the process,” he said. “We have delivered all what the people had asked for, now pay your taxes.”

Pakistan faces the problem of expanding the extremely narrow tax base and the government’s decision to triple the income tax exemption threshold to Rs1.2 million will remove about 522,000 income tax return filers.

However, Prime Minister Shahid Khaqan Abbasi believes that the drastic cut in individual tax rates would encourage people to file tax returns.

Akhtar said the government had bridged the gap between the business community and tax collectors and it was an expression of trust and confidence that the government reposed in the taxpayers and general public.

The FBR selected new audit cases in six categories including corporate cases of income tax, sales tax and federal excise duty (FED) and non-corporate cases of income tax, sales tax and FED.

The maximum number of 34,515 cases has been selected in the category of non-corporate income tax returns, followed by 7,532 in the category of non-corporate sales tax returns. About 1,499 corporate income tax cases have been selected for the audit.

Akhtar underscored the importance of audit in a country like Pakistan where a universal self-assessment scheme was prevalent.

He emphasised that the tax audit would be conducted in a professional and transparent manner, adding the selection was based on risk parameters, resultantly, compliant taxpayers would not be selected.

In March, the Lahore High Court had barred the federal government from enforcing the audit policy because of transparency concerns in the selection of cases. The court ruled that the audit policy could not be put into effect until the FBR framed the risk parameters on the basis of which the selection of audit was made.

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