According to news sources, the government will introduce a third-party audit scheme for the verification of returns filed by taxpayers. This means that the Federal Board of Revenue (FBR) will no longer have the power to audit the taxpayers’ record. Presently, the taxpayer selected for audit is sometimes left at the mercy of an unskilled audit officer for conducting the audit. It is also unfortunate to note that under the present scheme of audit, the FBR’s sole objective is to increase revenue collection, not taxpayer welfare. This could change with the decision by the government.
Another common allegation against the audit proceedings, other than meeting the tax targets, is that they are a means through which the tax collecting authorities engage in corruption and other dishonest practices. Hopefully, such complaints will reduce significantly with the implementation of the new mechanism for verification purposes. Also, auditing through independent auditing firms would lessen the workload on the FBR as well. Thus the FBR can focus more on its primary function, i.e., tax collection.
However, the government must ensure that the third-party auditors do not connive with the persons they audit. This strategy is by no means novel. Previous governments have attempted this, only to see a drastic reduction in revenue as a result. There must be a check and balance mechanism under which the private auditors carry out such audits. Similarly, the auditors selected must also be accredited and registered with the Audit Oversight Board. Lastly, the government must ensure that the taxpayers who undergo such private reviews pay for the services of these auditors themselves.