FBR disposed off cases without audit and in response to this FBR has recently issued tax Notices to the taxpayers for closure of audits.
310,000 tax audit cases
After failing to properly deal with 310,000 tax audit cases through proper scrutiny, the Federal Board of Revenue (FBR) has started dealing with cases pending for six years in a hurry, a loss to the exchequer.
According to the FBR’s internal correspondence and sources in the tax machinery, the FBR’s field formation was open on Saturdays and Sundays to dispose of these audit cases, which the government decided to close in April this year.
About 310,000 audit cases have been pending for the last three to six years due to lack of human resources. To address this shortcoming, the FBR decided to close all cases based on certain parameters instead of conducting a comprehensive audit.
Section 214D of Income Tax Ordinance, 2001
Sources said that under section 214D of the Income Tax Ordinance 2001, the tax audit of some high profile individuals and their companies also closed over the weekend.
The official version of the FBR awaited to see if all the procedures laid down in high profile cases, especially in Karachi, followed. “The FBR has decided not to close about 17,500 cases where it contains some information about taxpayers,” said an FBR member.
In April this year, the Pakistan Tehreek-e-Insaf (PTI) government decided to close more than 310,000 tax audit cases for failing to submit timely tax returns to taxpayers and pay reasonable taxes.
1.1 million income tax returns for Tax Year 2020
The FBR had a chance to save these people but it chose to close the cases. For the tax year 2020, the FBR has so far received less than 1.1 million income tax returns, down 36% from the same period last year. This tax is 63% less than the 2.94 million returns filed in 2019.
The deadline for filing a return extension is December 8, which the FBR has said will not be extended further.
Individuals, associations of individuals, and companies are benefiting from the FBR’s decision to close audit cases that are not capable of trailing hundreds of thousands of people.
These audit cases automatically selected under Section 214D of the Income Tax Ordinance 2001. In 2015, the PML-N government introduced section 214D in the ordinance so that these individuals and companies could be automatically selected for audit. Submit income tax returns on due or extended dates or do not pay taxes.
Section 122(5) of Income Tax Ordinance, 2001
But a senior FBR official said the FBR could reopen closed cases if it insisted on Section 122 (5) if it found any evidence.
In addition to the 270,000 outstanding audit cases under Section 214D, the FBR also auditing approximately 41,000 cases selected by computer balloting based on information or by Commissioners Domestic Revenue.
Under section 214C, the FBR has the legal authority to select cases for audit of income tax matters by computer and random ballot.
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