Finance Bill 2024 introduces a significant change to the Sales Tax Act 1990 – the concept of "investigative audits." This reform aims to bring more clarity and structure to tax audits, potentially reducing harassment of taxpayers and improving legal outcomes for tax authorities.
- Investigative Audits: A new section defines and regulates investigative audits, which can be initiated if the Federal Board of Revenue (FBR) suspects tax fraud "on the balance of probabilities." Prior written approval from the Commissioner is mandatory.
- Evidence-Based Approach: The FBR must possess evidence leading to the suspicion of tax fraud. This evidence and suspicion will be subject to judicial review.
- Time-Bound Process: Investigative audits must be completed within 90 days, preventing indefinite investigations that can burden taxpayers.
- Clearer Definitions: The definition of "tax fraud" is revamped for better clarity.
- Streamlined Audits: Section 25, dealing with regular sales tax audits, is revamped to eliminate legal ambiguities and enhance effectiveness.
- Detailed Procedures: The Finance Bill outlines detailed procedures for conducting both investigative audits and regular audits, including how they will be initiated, conducted, and concluded.
- Improved Assessment Orders: Section 11, which deals with passing assessment orders, is divided into separate sections for better clarity and linkage with audits.
- Reduced Harassment: Clearer guidelines and evidence-based investigations may reduce instances of tax authorities harassing compliant taxpayers.
- Stronger Legal Framework: Defined procedures and judicial oversight can strengthen the legal framework for tax investigations.
- More Effective Audits: Streamlined procedures and clearer definitions can potentially lead to more effective audits.
- Improved Tax Collection: By addressing ambiguities and potentially reducing frivolous litigation, the reforms may improve tax collection efficiency.
The introduction of investigative audits and clearer audit procedures in tax system represents a positive step towards a more transparent and predictable process for both taxpayers and tax authorities. However, it remains crucial to monitor the implementation of these reforms and their impact on tax collection and taxpayer rights.
