Rule soon to end annual hassle of tax file auditing

The National Board of Revenue (NBR) is set to adopt a rule to rid the taxpayers of the hassle of facing annual auditing of their tax-payment records.

Taxpayers, both of individual and corporate categories, may have to undergo tax audit every three years after enforcing the rules, officials said.

Such a relief measure from the revenue board is coming following instructions of the finance minister.

Finance Minister AMA Muhith in his budget speech for Fiscal Year (FY) 2014-15 pledged to simplify the auditing system to mitigate unusual harassment of the taxpayers in the name of auditing every year.

To comply with the directive, the tax-policy wing Thursday urged the audit, intelligence and investigation department of the NBR to act as per the decision immediately.

The taxmen would issue guidelines for enforcing the measure, officials said.

In a letter, tax-policy member Syed Aminul Karim said tax files under universal self-assessment system should go through audit once every three years.

"Taxmen can take legal action against the taxpayers in case of any specific allegation of tax evasion," he wrote.

Taxmen will have to sit for a hearing with the taxpayers to help them explain their reasons, it said.

A senior tax official said the NBR would have to instruct the field-level tax offices to follow the directives at the time of selection of tax files for auditing.

"It has been found that some large taxpayers have been facing auditing every year. There are widespread allegations of taxpayers being subjected to harassment through auditing," he said.

Owners of some big companies claimed that they are facing difficulties in carrying on smooth business activity for the audit hassle every year.

The tax official said field offices usually select one to two per cent of the total tax files, under universal self-assessment system, for auditing. But there are some common tax files that face taxmen's scrutiny almost every year.

The government took the initiative to reduce volume of auditing in a bid to ensure a taxpayer-friendly environment and increase voluntary compliance, he added.

In the present budget for FY 2014-15, the government has incorporated a rule that provides that a taxpayer who filed tax returns under universal self-assessment system will be exempted from auditing if 20 per cent higher income than that of the previous year is shown.

However, the NBR tagged five conditions to taxpayers enjoying exemption from auditing upon showing 20 per cent higher income.

Taxpayers will have to furnish bank statements in case of showing loan above Tk 0.5 million in the tax files. Taxmen would not allow any type of gifts, sectors that fall under reduced tax rates or tax refund in those tax files, according to the conditions stipulated for enjoying the provision.

Although the government has introduced universal self-assessment to encourage voluntary filing of actual tax returns, audit is necessary as a control mechanism of the government to thwart concealment of actual income by abusing the facility.

The tax offices require obtaining final approval from the higher authority of revenue board to audit any self-assessed file.

More than 90 per cent of the payers of income tax have submitted tax returns under the system, introduced in 2007.