Many taxpayers in Bangladesh may feel anxious upon receiving notification that their income tax return has been chosen for audit. The term “audit” can often be perceived as an implication of tax evasion, an indication of impending additional tax obligations, or the start of a prolonged disagreement with tax authorities.
However, it’s essential to understand that an audit should not automatically be seen as an assumption of wrongdoing. It primarily serves as a verification process where tax authorities scrutinize the accuracy, consistency, and substantiation of income, expenses, assets, liabilities, investments, and financial transactions disclosed in a return.
Recently, there has been increased public attention on the issue after the National Board of Revenue selected over 90,000 income tax returns filed for the 2023–24 assessment year for audit through an automated random selection process. Additionally, taxpayers were cautioned by the NBR about scammers contacting individuals via telephone, falsely claiming that their returns were chosen for audit and demanding money to remove their names from the audit process.
The legal framework for the audit process is outlined in Section 182 of the Income Tax Act 2023. According to Section 182(4), upon receiving the list of returns earmarked for audit, the Deputy Commissioner of Taxes is mandated to inform the taxpayer about the audit’s reasons.
If the audit reveals discrepancies in the taxpayer’s compliance, income, expenses, or assets as reported in the return, Section 182(5) necessitates the Deputy Commissioner of Taxes to send the audit report to the taxpayer. A notice may also be issued requesting the taxpayer to submit a revised return along with supporting explanations and evidence.
Should the revised return accurately reflect the audit findings and all resulting tax liabilities are settled, the Deputy Commissioner of Taxes may accept the revised return and inform the taxpayer that the audit has been finalized. However, if the revised return, explanations, or evidence are inadequate, or if the taxpayer fails to comply with the notice, the Deputy Commissioner of Taxes may proceed with an assessment under Section 183 or Section 184, as applicable.
There is a time constraint as well. A return or revised return must be selected for audit within two tax years from the end of the tax year in which the return was submitted.
It is crucial for taxpayers to verify the authenticity of any audit communication received. Official audit notices should be issued by the appropriate tax authority, clearly stating the assessment year, issuing tax circle, required documents, and submission deadline as per Section 183(3) of the Income Tax Act 2023. Taxpayers should verify the notice directly with the relevant tax office before responding or providing any documentation.
Any demand for immediate payment through personal bank accounts or mobile financial services like bKash, Rocket, or Nagad should be treated with caution. Payments for taxes, penalties, or other government dues must be made only through approved channels. Suspicious communications should be reported, and all related messages, phone numbers, and payment requests should be retained as evidence.
Once the authenticity of the notice is confirmed, taxpayers should diligently prepare a well-organized response. This includes a thorough review of the relevant return, ensuring all disclosures align with supporting records.
Individual taxpayers may need to gather various documents such as salary certificates, bank statements, tax payment challans, investment records, property deeds, and asset and liability statements. Business taxpayers typically have a more extensive process, involving reconciling sales and purchase records, invoices, bank transactions, VAT records, and financial statements with the figures in the income tax return.
Bank transactions are often scrutinized during audits. It’s crucial to provide explanations and supporting documentation for all deposits, especially for significant or unusual amounts that do not directly correspond to reported income.
An effective audit response should be clear, organized, and backed by evidence. Each query in the notice should be addressed sequentially, with supporting documents appropriately indexed and numbered. A complete copy of all submissions should be retained, along with evidence of submission details.
Upon receiving preliminary audit observations, it is essential to carefully review and respond with precise explanations, accurate calculations, and supporting evidence where necessary.
Ignoring a valid audit notice can have severe consequences, leading to penalties, reassessment, or legal actions. It is advisable to seek professional assistance in complex cases involving business accounts, foreign income, property transactions, or substantial investments. However, taxpayers should still maintain an understanding of their tax filings and be able to explain major financial transactions.
Tax administration should provide specific queries, reasonable deadlines, and objectively consider taxpayers’ explanations. A fair and professional audit system can enhance voluntary compliance and public trust, while arbitrary or intimidating practices may have adverse effects.
Ultimately, a tax audit should be viewed as an opportunity to validate the accuracy of a return. It allows compliant taxpayers to demonstrate their adherence, while offering a chance to rectify genuine errors promptly. Timely preparation, proper documentation, professional behavior, and confidence in factual accuracy are key in responding to an audit notice.