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| July 5, 2005 | Tuesday | Jumadi-ul-Awwal 27, 1426 |
CBR fails to detect understated income cases
ISLAMABAD, July 4: The Central Board of Revenue (CBR) has failed to evolve an effective audit strategy to point out the people understating their income despite spending millions of rupees in the last three years, sources told Dawn here on Monday. The sources said the government had hired the services of a chartered accountant from the private sector besides posting tax officials at double salaries to evolve an effective strategy to detect cases of understatement. The CBR had also hired the services of an international firm two years back for the purpose.
They said the firm had worked out a report for the detailed audit functions of the CBR on the models of developed states, indicating the scope, role and responsibilities of all the audit related functions. However, the report did not mention that how these could be achieved and implemented in a developing country like Pakistan.
Similarly, the member audit came up with a sales tax audit policy which was approved by the board-in-council in April last but it was also discarded by the chairman.
The sources said the CBR chairman, Abdullah Yousuf, had recently asked for adoption of the same old system of audit, which had been rejected by the reform team three years back as an outdated and harassing system.
They quoted the chairman as saying that there was no audit of the taxes but assessment of the returns. This means there would be no audit and the board would accept the tax returns filed by the taxpayers.
They said with this decision, now the members sales tax, central excise duty, customs and income tax would monitor, implement and regulate the audit functions of their respective departments, which apparently failed to deliver previously.
This action would be in violation of the Tax Administration Reform Project (TARP), which envisaged a separate wing of audit policy for all taxes, which was established three and half years back.
In the TARP report, the tax authorities agreed with the World Bank that the audit department to be headed by a member would work out section criteria for all taxes; originate audit structure for all taxes; audit programmes and procedures for all taxes; post clearance audit of customs; warehousing audits; selection and training of auditors of all taxes.
Restoration of the old audit policy by the chairman would be the first attempt to change the TARP project’s main concept after being approved by the president and the World Bank, added the sources.
Pakistan would be the only country in the developed and developing countries to introduce a universal self-assessment scheme for all taxes but failed to install an effective audit policy for detecting the nil filers or the short filers.
In countries like India, Sri Lank, Nepal, South Korea, Malaysia, a strong audit department was established simultaneously with the introduction of the self-assessment scheme in their taxation regime.
Similarly, the failure of the reforms team of CBR could be gauged from the fact that the CBR chairman had suspended the external sales tax a few months back following serious complaints from the taxpayers about harassment by the
auditors.
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