ISLAMABAD: The government is expected to introduce fresh regulations in the next finance bill to rein in sales tax evasion by outsourcing the task of verifying the authenticity of filed returns to chartered accountants.

This is one of the main proposals sent by the Federal Board of Revenue (FBR) to the finance ministry for inclusion in next month’s budget.

Under the new rules, returns filed by commercial entities will have to be verified by a chartered accountant, so that any irregularities are weeded out.

The government hopes this will curtail sales tax evasion which costs the exchequer an estimated Rs500 billion every year.

Sources tell Dawn this proposal is inspired by the United Kingdom’s model, which has been using this practice to minimise tax fraud and ensure a better tax-to-GDP ratio.

Move aimed at stemming tax evasion

But according to former FBR chairman Abdullah Yousuf – who is also a chartered accountant – the proposal is not likely to capture the imagination of the top leadership, adding that such measures are more effective in documented economies where all expenditure of tax payers’ money is a matter of public record.

Mr Yousuf said the quantum of tax evasion is higher in Pakistan because the economy mostly operates on cash transactions, which are undocumented. He recommends that the FBR would be far more successful if it were to focus on enforcement.

However, the FBR holds that problems such as input or output adjustment of sales tax and the issue of flying and fake invoices can be addressed by incorporating accountants into the process.

There is an impression within the tax department that certain ‘unscrupulous tax advisers’ are helping taxpayers evade their liabilities. However, this claim cannot be substantiated through documentary evidence.

According to the fresh proposal, the filing of 12 monthly sales tax returns should be replaced by four quarterly filings. As a test case, quarterly filings may be made mandatory for certain select sectors.

This move will also make things easier for commercial entities, which won’t have to file monthly returns.

In order to be submitted, these returns must be certified by a chartered accountant who will vouch for the authenticity of the information that has been declared. In case fraud is detected, the accountant concerned will also be held accountable and penalised accordingly.

The tax department will not accept returns that are not duly endorsed and bear the certificate of a chartered accountant.

A tax official told Dawn the chartered accountant certifying returns would be held personally accountable for their actions and omissions. Therefore, the accountant will have to ensure that no tax fraud has been committed in the sales tax returns filed.

Moreover, the chartered accountant would be carrying out an audit of the company every quarter, which would ensure timely depositing of tax in the national exchequer. “The onus of substantiating the declared returns would be on the chartered accountant,” the official added. But Dr Ikramul Haq, an accomplished tax lawyer, went one step further and recommended that tax officials also be held responsible for massive instances of tax evasion.

Published in Dawn, May 25th, 2014