Paying taxes is a civic duty of every Pakistani citizen, and the government uses the revenue generated from these taxes for the welfare and development of the country. The Federal Board of Revenue (FBR) is responsible for collecting these taxes, and as part of its mandate, it conducts income tax audits to ensure that taxpayers are complying with tax laws and regulations.
In this article, we will discuss the selection criteria for income tax audits in Pakistan and how the Finance Bill 2022 has updated these criteria.
Selection Criteria for Income Tax Audit:
The selection of persons for an income tax audit in Pakistan is done by the FBR through a computer ballot. This ballot can be random or parametric, depending on the discretion of the FBR. Under the Income Tax Ordinance 2001, the FBR can select persons or classes of persons for an audit of their income tax affairs through this computer ballot. The process is designed to ensure that the selection is unbiased and transparent.
Finance Bill 2022 Update:
The Finance Bill 2022 has updated the selection criteria for income tax audits in Pakistan. According to the updated provisions, the following changes have been made:
- The provisions of section 177 and 214C shall not apply to a person whose income tax affairs have been audited in any of the preceding four tax years.
- The Commissioner may select a person under section 177 for an audit with approval of the Board.
The above provisions mean that if a person has been audited in any of the preceding four tax years, then they will not be subject to another audit under sections 177 and 214C of the Income Tax Ordinance 2001. However, the Commissioner may still select a person for an audit under section 177 with the approval of the Board.
Section 177 of the Income Tax Ordinance 2001 empowers the Commissioner to conduct an audit of a person’s income tax affairs if there are reasons to believe that the person has understated their income or has not paid the correct amount of tax. Section 214C deals with the mandatory requirement of a person to maintain books of accounts and supporting documentation for income tax purposes.
The update made in the Finance Bill 2022 is a significant change that provides relief to taxpayers who have already undergone an income tax audit in the preceding four tax years. It also aims to streamline the selection process for income tax audits and ensure that it is conducted with transparency and fairness.
An income tax audit is an essential tool that the FBR uses to ensure compliance with tax laws and regulations. The Finance Bill 2022 has updated the selection criteria for income tax audits in Pakistan to provide relief to taxpayers and ensure fairness and transparency in the selection process. As responsible citizens, we must comply with tax laws and regulations to contribute to the development and progress of our country.