AND NOW DESK (TELEPHONE) AUDIT

AND NOW DESK (TELEPHONE) AUDIT <!--[if gte mso 10]> AND NOW DESK (TELEPHONE) AUDIT By Mr. M. Iqbal Patel, FCA, Karachi The Central Board of Revenue (CBR) under section 32A of the Sales Tax Act, 1990 is empowered to appoint a firm of Chartered Accountant (C.A.) or Cost and Management Accountant (CMA) to carry out special audit of the records of registered person. Further the section 32AA authorizes the Assistant Collector to assign an officer of sales tax not below the rank of auditor or Deputy Superintendent to carry out audit of any retailer. However, a retailer who pays turnover tax or retail tax under section 3A or 3AA respectively has been given option to get his records audited by CA or CMA in lieu of audit by officer of sales tax, provided he pays half of the fee payable to the said CA or CMA. Since the present system of sales tax is based on self-assessment whereunder the registered person determine their tax liability on their own, hence the audit is the only effective tool to ascertain whether the registered person has correctly assessed his tax liability and has deposited due tax into the Government treasury. The C.B.R. has therefore, been giving utmost importance to the audit process and has been issuing directives from time to time on the subject. These directives have summarily been discussed in this paper. The C.B.R. has issued Sales Tax Special Audit Rules, 1998 in respect of special audit to be carried on by the special auditors of the records maintained by the registered persons. These rules define the scope of the special auditors to be the expression of professional opinion in his prescribed audit report with respect of the matters specified therein. The C.B.R. in their Sales Tax General Order No. 1 of 1999 has prescribed the procedure for monitoring of audit reports prepared by the departmental auditors or special auditors. According to the procedure the selection for audit and assignment of units should be done through computer or manually by Additional Collector which may not exceed 10% of total audits to be conducted. A unit should be audited by audit team on rotation basis. In order to ensure transparency, the laid down procedure provides that a registered person will not be audited more than, once in six months, who will be informed of audit of his records at least ten days before scheduled date of commencement of audit which should be completed within 3-4 days. The audit report should be submitted to the Collector within 14 days from the date of commencement of audit, who will forward it to the Additional Collector within 3 days of its receipt with his comments on each aspect of the report. The audit report showing sales tax of Rs. 1 million or above or which points out serious lapse should be sent to Secretary ST-A Section of CBR who will report to the Member-Sales Tax in case of important detection found by him in the report for further necessary action. In view of the complaints by trade and industry and with a view to streamlining the audit of registered units including composite units paying both excise duty and sales tax, the CBR under their General Ordinance No.9 of 1999 has laid down certain criteria to conduct the audit of such units. Whereby the number of audit of such units has been reduced to once during a financial year. And in case of composite units manufacturing and supplying excisable and sales taxable goods, a joint audit will be conducted by the team of officials of both sales tax and excise Collectorate. The audit by sales tax official has been subject to criticism by the taxpayers in respect of their conduct and harassment. In order to remove their grievances and to facilitate them the audit procedure has further been streamlined under General Order No. 2 of 2003 which requires the officers of sales tax to follow the procedure laid down therein. Accordingly the officers dealing-with audit matter shall ensure that the notices etc. issued by them should bear their seal, signature, 'telephone/fax number and e-mail address. They shall affix their signature with official seals on records checked by them during the audit. The Assistant Collector shall forward the audit report to the registered persons within four weeks of submission of the report by the senior auditor. After approval of audit report he shall issue a signed and sealed prescribed certificate of completion of audit to the registered person. Besides number of general orders and other letters have been issued on the subject of audit by the C.B.R. in respect of audit to be conducted by the sales tax officers of the registered units. Besides it the audit is also conducted by the officials of Auditor General of Pakistan (AGP) and the Directorate General Audit Revenue Receipts (DG RRA). The DGRRA conducts the audits of the records of the taxpayers as is available with the Sales Tax and also used to visit the units. The C.B.R. proposed to restrict them from visiting the premises of the registered person for the purpose of audit. This proposal has been approved by the Finance Minister. They are directed to carry out audit within the premises of the respective Sales Tax Collectorate only. In order to attend the grievances of the traders and industries, there has been coordination between the AGP, DRRA, CBR and FPCCI in respect of the matters concerning sales tax audit. All of them have unanimously agreed in their meeting held on 30-10-2001 regarding the documents that will be requisitioned by the Collectorate of Sales Tax and DRRA from the registered person for the purpose of undertaking audit of their records. The list of such records has been specified in C.No.5 (49) St-Int-Audit 2001. The documents/records to be required by the auditor in case of imports, manufactures, commercial exporters and manufacturers-cum-exporters has been specified separately. This procedure will facilitate the registered unit to keep up-date the records specified therein which can conveniently be produced to the auditor. Although the audit of registered persons of importers, manufacturers, commercial exporters, manufacturers-cum-exporters and others is being conducted by the auditors of the sales tax department but the S.32AA restricts the audit to be conducted by them of the retailers only. The firms of C.A or CMA appointed by the C.B.R. under section 32A are only authorized to conduct special audit of the aforesaid registered persons. The C.B.R. has now devised new parameters for carrying out audit which will be called Desk Audit. A Desk Audit Cell will be established for the purpose comprise of senior auditors. The desk audit shall be assigned to senior auditors by the Incharge of the Desk Audit Cell. It will be conducted where the current strength of senior auditors is not sufficient to cover the required number of audits of the registered persons. According to the parameters, the Collector of Sales Tax would conduct desk audits with effect from February, 2004 of the registered persons of retailers, wholesalers, distributors, and the service providers which have low turnover or low risk profiles on the basis of new parameters. The desk audit will not be conducted of those units whose regular audit is already being conducted. A profile of each registered person whose desk audit is to be conducted will be prepared. This profile will be based on the information such as taxable sale, export sale, exempt sale, total sale, output, taxable purchase, exempt purchase, zero-rated purchase, input, sales credit, carry forward, refund, tax paid, and refund received. The records to be examined under the desk audit will be monthly sales tax returns, audited accounts, previous sales tax audit reports. Based on these records and other information available with the collectorate the trend in respect of payments of sales tax will be examined. The incharge of the desk audit cell will select the unit of registered person based on the examination of sales tax returns of the taxpayers provided to him by the Computer Section of the Sales Tax Collectorate. Interestingly the registered person selected for desk audit will not be served with a notice but the informations will be called on phone by the incharge desk audit or Sr. auditor who has been assigned such audit. The auditor will be provided with computer profile of the registered units whose audit is assigned to him. An auditor will be assigned at least 15 units in each month for audit allowing him not more than a day to finalize the audit. The auditor will prepare Desk Audit Completion Report on completion the audit incorporating therein the facts and legal aspects of the audit conducted and pointing out the discrepancies, if any. The audit report will be submitted to the Incharge Desk Audit. The desk audit incharge will verify the contents of the said audit reports and will determine the tax liability arising against the registered person. However, if he feels that the findings of the tax audit requires further probe, then he may refer the case to the Collector for routine or detailed audit. After completion of desk audit a snap audit will be conducted on specific issues. The audit will be completed within two days. The C.B.R. believes that desk audit will create healthy environment and without causing any inconvenience to the registered person. The object to devise the procedure of desk audit is to enhance GST collection. It is said and perhaps rightly that a friendly and cooperative tax administration will enlarge the number of taxpayers to a greater extent.