The World Bank has suggested that the revenue board move away from the conventional way of reconciling taxpayers' audit and adopt investigative and analytical approach to get better results.
The National Board of Revenue (NBR) should focus on capacity building of the income tax and VAT officials to conduct taxpayers' audit successfully, the Bank said in recent a note.
The multilateral lender also suggested the taxmen avoid multiple audits for taxpayers, which may place burden on compliant taxpayers while escalating administrative costs.
The WB note titled 'Taxpayers audit function assessment report' under its domestic resource mobilisation technical assistance programme, has been prepared after consultation with the NBR to find gaps in the taxpayers' audit, its limitations and wayouts.
Businesses, chambers and corporate houses have long been calling for easing the audit process, which often causes harassment.
Industry insiders said they face multiple audits by income tax and VAT field officials, VAT audit directorate and auditor general's office.
"Current approaches followed at NBR implicitly indicate that the key objective behind audit is to generate revenues
instead of improving taxpayer compliance behaviours through the deterrent impact of the audit operations," the note said.
The note was prepared in January 2019, mainly based on VAT and income tax audit. Recently, the Bank has sought NBR's opinion on it.
It followed a WB mission meeting with the NBR officials from November 25 through 28.
The objective of the mission was to validate the draft audit assessment report disseminated to NBR stakeholders on October 9, 2018 and to prioritise the recommendations.
The report found each wing of the NBR follows different methods while carrying out audits, which hinders the uniformity of results.
At the VAT wing, there is a directorate for audit, intelligence and investigation with the mandate to carry out VAT audits all over Bangladesh.
"…there are 12 VAT commissionarates that carry out VAT audits on any entity within their jurisdiction. The directorate and the commissionarates have separate audit programmes for selecting cases and carrying out the task," said the note.
It added, "There is the Central Intelligence Cell (CIC) that conducts audits, if they deem necessary."
The NBR has no written and comprehensive audit strategy within a yearly compliance programme, such strategy is important to guide the audit function within a structured programme, according to the note.
It has been estimated by the VAT administration wing member that only 15 per cent of the VAT auditors have received training in auditing tax files.
The exposure is also inadequate for the auditors in the income tax wing as they receive a two to three hour lectures on NBR guidelines on how to conduct an audit.
The audit function at the VAT wing with its 12 commissinarates follows a manual process.
Starting from the selection of the audit case to the completion of the audit report, each stage is managed manually, and the audit team could have up to a two-year timeframe to complete the case.
Although there is a move to automate the audit module, it may take one more year to roll out.
Under the VAT Online Project, jointly financed by the WB and the government, the board will automate the VAT audit process.
"Rolling out the audit module at the VAT wing would be considered a major step toward reforming the audit function," the WB note said.
The WB recommended extending the automated audit module for income tax wings, large taxpayers unit and CIC to maximise the benefit.
Currently the selection criteria for audit are not standardised and are not based on a risk assessment framework.
A computerised Assessment Selection System (CASS) would provide a good tool to be used in audit case selection.
Most of the audits are investigative audits based on information provided by informers or special sources.
Sometimes directions are received directly from the NBR to carry out audits on certain entities on sectors.
Currently, each commissinarate or the directorate sets up its own set of selection criteria which hinders uniformity in audits.
"History and perception about a company may form a basis for filtering," the note said.
In the income tax wing, the audit function follows two streams, normal and universal self-assessment, which are not automated with no clear formal reporting.
The WB has detected flaws in both of the VAT and income tax audit such as the absence of an overarching tax procedure code (TPC) and lack of an HR competency model.
It also found coordination, almost non-existent, between audit programmes conducted by VAT and income tax wings.
During March 25-29, 2018, a WB team conducted an assessment on audit function of the NBR and produced a draft report for discussion.
The report summarises the key findings, outlines the main gaps and proposes ways to strengthen audit function and promote voluntary compliance.
A follow-up mission took place during November 25-29, 2018 to validate the content of the draft audit assessment and to prioritise the recommendations.
The WB has placed short, medium and long term recommendations in the report.
The short-term recommendations include producing a report on health of tax system by analysing the audit programme outcome.
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