Taxpayers suffer as NBR can't carefully verify return audit

Government revenue authority lacks scope to centrally verify accuracy of the selected tax-returns coming from outfield offices for audit, resulting in alleged harassment of the taxpayers.
Sources said the audit, intelligence and investigation wing of the income-tax department of the National Board of Revenue (NBR) does not have the capacity to scrutinise all as hundreds of the returns are sent at a time from the tax-circle offices across the country.
As such, being deluged with the files on income-tax accounts of people, the NBR wing on oversight of such submissions, is compelled to railroad these with the seal of approval on the basis of selection by the tax offices.
Allegations are rife from the taxpayers on "harassment" by a section of field-level tax officials in the name of tax-file audit.
The shortcomings in the existing audit system have been pointed out by some of the senior tax officials and experts while talking to the FE.
There is also allegation that many of the tax files having revenue potential were left out of audit for reluctance and lack of expertise of the taxmen for selecting correct audit issues.
Lack of sincerity and revenue-minded approach of the outfield tax officials on audit management were also pointed out as one of the major shortcomings.
A senior tax official said range officers in the field offices need to be more cautious on selection of the tax files for audit.
"The allegation of harassment can be resolved by automating the auditing system," he told the FE.
Some of the field-level tax officials have inadequate knowledge and skills on audit, he added.
According to the available statistics, the tax offices select for audit less than 3.0 per cent of the tax files through random sampling.
Ferdaus Ara Begum, Chief Executive Officer (CEO) of Business Initiative Leading Development (BUILD), said the taxmen should adopt risk-based auditing system rather than random sampling to ensure accuracy and transparency.
Currently, the audit selection is done "whimsically" by the tax officials, creating panic among the taxpayers, she observed.
"NBR prepares an audit guideline for its field-level tax officials. It should be shared with the taxpayers so that they can prepare themselves as per selection criteria," she said.
Taxpayers alleged that a section of supporting tax officials and tax lawyers prepare fake list of audit to earn money by making taxpayers panicky. They threaten taxpayers that their tax files will be selected for audit unless they spend money to stop the process.
Solaiman Parsee, a businessman in old Dhaka, alleged one tax lawyer came with a list of some businessmen of that area claiming that their tax files had been selected for audit.
He collected money from all of the businesspeople to bribe taxmen to stop the process, he added.
"My tax file has been selected for audit as I declined to pay the money, but those who had paid the amount could escape the auditing," he said.
The NBR received around 90 per cent of the tax returns under universal self- assessment method that was introduced in 2008-07.
Former NBR chairman Dr Abdul Mazid said the government introduced the universal self-assessment system to ensure voluntary compliance of taxpayers but increased focus on auditing tax files of taxpayers is harming the spirit.
"Taxmen have to keep faith on taxpayers' declaration," he said.
People will not be encouraged to come under tax net if such harassment in the name of audit continues, Dr Mazid said about the downside of audit spree.
The former revenue-board chief pointed out that taxmen are wasting their time on audit of the marginal taxpayers' files while revenue can be generated by focusing on the tax evasion by large taxpayers.
Economic cost of the audit of a tax file should also be measured, he said.
He also mentioned that there is a huge gap between tax-payment amounts of large and marginal taxpayers.
Taxmen can realize manifold higher tax by auditing a large corporate taxpayer's than that of small and mid-level taxpayers, he said, adding: "I am not against audit but its implementation should be done rationally."
He is of the opinion that same taxpayers should not get notice for audit repeatedly.
NBR officials said as per audit guidelines, taxmen are not allowed to select same taxpayers for audit within three consecutive years unless detecting any certain tax evasion.
It has been alleged that audit criteria set by the NBR mostly covered all of the aspects of a tax file causing difficulties to them to escape audit by meeting one criterion or two.
As per general audit guidelines of the NBR, tax files should not be audited if a taxpayer shows 15 per cent higher income than that of the corresponding year.
According to the NBR sources, the tax authority will audit some 25,000 tax files a year as per Annual Performance Agreement.
The government receives nearly Tk 2.0 billion on average by auditing tax files.
In the last six years, the NBR had realised around Tk 20 billion in income tax out of total tax demand for Tk 200 billion. Of the amount, some 30 per cent of the taxes came from the Large Taxpayers Unit (LTU) while the rest was contributed by the 31 tax zones across the country.
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