ISLAMABAD: As fury mounted over audit notices served to over a million compliant filers of tax returns, the Federal Board of Revenue (FBR) tried to calm the situation by claiming that the government was facilitating taxpayers “by providing them a one-time option for closing the audit proceedings due to late filing of returns through the Finance Supplementary (Amendment) Act 2018.”

More than a million compliant tax payers have received audit notices this year. In many cases, the notices are automatic, but quite a few are not. According to Hammad Azhar, Minister of State for Finance, many of these people were already selected for an audit notice since 2015, though it was not clear why they were not served notices back then.

The FBR explained that an amendment in income tax law made through Finance Act 2015 by the previous government provided for automatic selection for audit if a person had not filed return of income by the due date stipulated under the law. Through Finance Act 2018 this amendment was withdrawn, however the cases that were automatically selected under the said provision prior to its withdrawal were still to be audited.

This created a lot of problems for the taxpayers and also resulted in a large pendency of audit cases. Therefore, in order to facilitate the taxpayers, the present government, provided a one-time option to the taxpayers for closing the audit proceedings due to late filing of returns through the Finance Supplementary (Amendment) Act 2018, according to the FBR press release.

Under the Finance Supplementary (Amendment) Act 2018, taxpayers were provided an option to get their audits closed on the payment of either 25 per cent higher taxes than the tax paid with the return or in case no tax was payable, 2pc of the turnover and to file revised return by Dec 31.

The salaried individuals whose cases were selected for audit due to late returns were facilitated by exempting them from the requirements of paying 25pc higher tax and filing revised returns for closure of their audit cases. They, however, had to pay only the penalty on account of delay in filing of return in order to get their cases closed. It is worth mentioning that the previous government had fixed the minimum penalty for late filing of return at Rs20,000 through the Finance Act 2013 and no change has been made by the present government.

It is imperative to understand that the penalty proceedings are independent from audit which will be applicable regardless of whether the taxpayer avails the benefit under the above-mentioned provision of the Finance Supplementary (Amendment) Act 2018 or not.

That is to say that even if the taxpayer chooses not to conclude its audit proceedings, he or she would have to pay the tax charged as a result of these proceedings as well as the penalty for late filing which, as mentioned before, is an independent provision applicable on persons who were obliged to file their returns but did so late.

Published in Dawn, November 23rd, 2018