Audit by CE/Service Tax officers - Audit should provide help and suggestions to taxpayers to improve compliance
IN its Third Report, the Tax Administration Reform Commission (TARC) has recommended:
One major issue that needs to be fixed is the basic approach to compliance verification. Currently, the focus appears to be primarily to find fault in assessments. This approach overlooks two important outcomes that the process can lead to namely, compliance improvement and compliance measurement. The process, therefore, needs to be made far more collaborative and transparent. It should be a part of the auditor's task to provide help and suggestions to taxpayers to improve compliance, which is the common practice internationally.
An open discussion about the issues arising in audit, and taking on board the views of taxpayers on those issues before taking a final position should be encouraged as an integral part of the process. While this is provided for in the EA 2000 process, it is apparently followed more in letter than in spirit as the conduct of the audit parties is driven by the overwhelming revenue orientation in the administration. As part of this process, when the commissioners finalise the audit points in audit committee meetings, they should be required to give an opportunity to the taxpayers being audited before they take a final view on the audit points and their record should reflect the auditee's view as well.
Further, as part of the quality management of audit, the DG (Audit) should independently seek feedback from the taxpayers being audited on their experience during the audit and their perception of how the audit parties conducted the audit. This can be done through a suitable questionnaire, to be sent from the DG (Audit) headquarters via email.
The performance evaluation of audit also needs to be made more broad-based. Currently, almost the entire focus in performance evaluation is on revenue involvement in the audit observations. Bearing in mind that audit is a critical feedback loop in risk assessment, evaluation should focus also on assessing the effectiveness and accuracy of audit selection and audit planning.
Many administrations abroad use audit as a compliance measurement tool. Proper analysis of audit findings can give insights into the state of compliance in different sectors of the economy and can also provide pointers to areas where it is necessary to sharpen enforcement through targeted intelligence driven investigations.