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Selection of cases for Audit under Audit Policy 2018

The Audit Policy 2018 pertaining to Tax Year 2017 has been approved by the Federal Board of Revenue. The selection of cases this year has been done on parametric basis. Advanced data analytics have been used to design parameters to make sure that only non-compliant tax payers are selected. As a result, the FBR has selected a small number of high-risk cases for audit compared to previous years. This year only 2.3% of total cases available for audit for Income Tax, Sales Tax, and FED have been selected through ballot compared with 7.5% cases selected in last year’s ballot. Furthermore, the FBR has decided that taxpayers who have been audited in Income Tax in any of the preceding three Tax Years i.e. 2016, 15, and 14 and salaried individuals would be excluded from this year’s Ballot. Similarly, taxpayers who have been selected for audit under Audit Policy 2017 for Sales Tax and FED have been excluded from this year’s ballot.

The following parameters have been applied for selection:

I. Income Tax:

The risk parameters would not be disclosed in accordance with section 214 C (1A) of Income Tax Ordinance, 2001.

II. Sales Tax:

1. Decline in value of supplies as compared to corresponding months of previous year

2. Consistent increase in input tax/output tax ratio over corresponding months of previous three years

3. Decrease in taxable supplies to total supplies ratio as compared to corresponding months of previous year

4. Difference in declared value of sales as compared to declared turnover in Income Tax Return

5. Persons declaring reduced rate sales

6. Manufactures showing inadequate value addition.

7. Declared sales are less than imports

8. Decrease in payment of tax as compared to corresponding months of previous year

9. Increase in refund claimed as compared to corresponding months of previous year

10. Unclaimed purchase to declared purchases ratio is high

11. Utilities to sales ratio is high

12. Discrepancy identified by CREST

III. Federal Excise Duty

1. Decrease in payment as compared to corresponding months of previous year

2. Decline in value of supplies as compared to corresponding months of previous year

3. Consistent increase in input tax/output tax ratio over corresponding months of previous three years

4. Decrease in taxable supplies to total supplies ratio as compared to corresponding months of previous year

5. Difference in declared value of sales with declared turnover in Income Tax Return

6. Persons declaring reduced rate sales

7. Manufactures showing inadequate value addition

8. Declared sales are less than imports

9. Decrease in payment as compared to corresponding months of previous year

10. Increase in refund claimed as compared to corresponding months of previous year

11. Unclaimed purchase to declared purchases ratio is high

12. Utilities to sales ratio is high

The Audit Policy 2018 and National Tax Numbers/CNIC of cases selected for audit have been placed on FBR’s website at www.fbr.gov.pk