Unverified taxpayers face a one-third chance of being selected for tax audits
The National Board of Revenue (NBR) has issued new Income Tax Return Audit Instructions, aimed at enhancing transparency, accountability, and efficiency in tax audits. The new directive, which takes effect in 2025, introduces several key changes, particularly in the audit selection process for previously unaudited taxpayers, zero-income and low-profit returns, and automated audit file selection based on risk assessment.
One of the significant changes is the mandate that one-third of all audit selections must be from taxpayers who have never been audited before. This move is expected to broaden the audit base, increase tax compliance transparency, and ensure greater accountability.
Another notable change is the emphasis on more stringent scrutiny of returns showing zero income or very low profits. These returns, which have often been bypassed in the past, will now be reviewed carefully to identify potential underreporting or tax evasion.
To enhance efficiency, the NBR has introduced an automated audit file selection system. This system uses a risk-based approach to select returns for audit, focusing on those with higher risk profiles. This automation is intended to reduce arbitrary or manual selection biases and improve the overall auditing process.
Snehasish Barua, director of SMAC Advisory Services Limited, has emphasized the importance of automated selection of audit files based on risk assessment, stating that it will help build taxpayer confidence. Abdur Rahman Khan, chairman of the NBR, has also stated that the new audit selection process is now transparent and automated.
The threat of audits, which has historically been used by some tax officials to demand unofficial financial benefits from taxpayers, is expected to be significantly reduced under the new system. In the past, audit selection lacked specific guidelines, often targeting files with reported losses, refund claims, or gifts. However, the new directive from the NBR specifies which tax files will be audited and outlines the responsibilities of the officials.
The new rule aims to reduce opportunities for tax fraud by limiting collusion between taxpayers and corrupt officials. The new directive has been welcomed by experts who stress the importance of accountability and reduced corruption.
Annually, over 25,000 companies and more than 40 lakh individuals submit tax returns in the country. Under the new system, one-third of all returns selected for audit by any tax office must now come from taxpayers whose files have never been audited before. Additionally, "high-risk" new tax files are now also eligible for audits.
Experts believe that these changes will boost transparency, accountability, and efficiency in tax audits, making evasion more difficult and improving overall tax enforcement outcomes. The new audit process is expected to significantly reduce opportunities for irregularities related to tax fraud, alleviating audit-related fears among taxpayers and restoring order to the audit system.
- The automated audit file selection system, based on risk assessment, aims to reduce arbitrary selections and increase transparency in the tax auditing process, as stated by Snehasish Barua, director of SMAC Advisory Services Limited.
- The new policy-and-legislation directive by the National Board of Revenue (NBR) that mandates the audit of one-third of previously unaudited taxpayers, particularly companies and individuals, will help improve tax compliance and accountability, according to general-news reports.
