TAX AUDIT FRAMEWORK
TAX AUDIT FRAMEWORK
Tax Audit Framework
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TABLE OF CONTENTS
Page No.
1) Introduction 3
2) Tax Audit Concept 5
3) Statement of Additional Information 9
4) Contents of Engagement Letter for Audit under Section 177(8) of the Income Tax Ordinance, 2001, Section 32A of the Sales Tax Act 1990 and Section 46(4) of Federal Excise Act 2005
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5) Audit Report 17
6) The Process of Tax Audit 20
7) Exclusions/ Exceptions 23
8) Fees 25
9) Procedures for Tax Audit 27
10) Selection of Auditors and Auditees for Tax Audit 30
11) Annexures
A – Independence Declaration by Tax Auditor
B - Engagement Letter
C - Auditors’ Report to the Commissioner of Income Tax
D - Auditors’ Report to the Collector of Sales Tax
Model statements of additional information for:
E Manufacturing
F - Services
G Banking
H- Oil & Gas Exploration
I - Insurance
J- Sales Tax & Federal Excise
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35
39
40
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59
75
91
110
124
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TAX AUDIT –DEFINITIONS AND ABBREVIATIONS
TAX AUDIT Audit of Tax Statements
TAXPAYER Assessee who is required to get his Tax Statements audited by Tax
Auditor under Tax Audit Framework
TAX LAWS Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act 2005
TAX AUDIT REPORT Audit Report issued by the Tax Auditor
TAX AUDITOR Firm of Chartered Accountants
TAX STATEMENTS Statement of Additional Information and Tax Returns
TAX RETURNS Income Tax Return and Sales Tax cum Excise Duty Return (in the Form prescribed under the respective Tax Laws).
STATEMENT OF ADDITIONAL INFORMATION
Statement required to be provided by the Taxpayer under the Tax Audit Framework to the Tax Auditor.
MANAGEMENT Refers to the representatives of Taxpayer having executive authority for the preparation of Tax Statements
ISAs International Standards on Auditing ( issued by International Federation of Accountants)
FBR Federal Board of Revenue
ICAP Institute of Chartered Accountants of Pakistan (the Institute)
TAX AUDIT FRAMEWORK Framework notified by FBR vide SRO …… dated …….for the purpose of tax audit.
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1. INTRODUCTION
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1. INTRODUCTION
1. FBR’s main objective of outsourcing the Tax audit through Chartered Accountants is to establish an objective and effective tax audit system that will create deterrence to mis-declarations in the tax returns filed by the tax payers. Such a system is expected to contribute in developing a culture of compliance with tax laws over time that will help in improving the tax collections as well as improve the tax to GDP ratio.
2. Under the current provisions of the tax laws (Income Tax Ordinance, 2001, Sales Tax Act, 1990 and
Federal Excise Act 2005), there is a system of self assessment that enables the tax payer to determine his own tax liability. Under this system, there is major reliance on the tax payer to file accurate and reliable tax return. The purpose of tax audit is to ensure that declarations made by the tax payers are accurate and reliable. Main objective of the tax audit is to create deterrence for under or incorrect declarations of income by the tax payers. In order to ensure tax payer’s confidence on this system, the selection of tax payers to be audited will be done on a random basis, using an appropriate system, that ensure objectivity in the selection process. Such a process will also be adequately publicized and communicated to the tax payers.
3. In Pakistan, the audit of the financial statements is carried out in accordance with the International
Standards on Auditing (ISAs). Although the tax audit is not required to be conducted in accordance with the ISAs, the auditor would be expected to consider the guidance and requirements contained in ISAs as a best practice, wherever appropriate. Additionally, the audit should identify the risks of material misstatements in the tax statements and the underlying financial statements, based on the input from relevant tax officers, so as to focus his work on such areas.
4. The underlying considerations on the basis of which the concepts and guidance contained in this framework have been developed include: (i) practices prevalent in other comparative jurisdictions (ii) specific requirements of the fiscal statutes; and (iii) current practices adopted by the tax authorities for tax audit. However, it is emphasized that an effective system of tax audit will evolve over time, and the concepts and practices underlying such audit, will require suitable amendments based on the experience gained in the conduct of the audit by Chartered Accountant firms.
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2. TAX AUDIT CONCEPTS
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2. TAX AUDIT CONCEPTS
A tax payer files return of income tax annually and an annual sales tax cum federal excise duty return (which is a consolidation of monthly returns) with the FBR. The following are the concepts for carrying out the tax audit under this Framework:
a. The audit of tax statements is aimed at providing credible information in the hands of the assessing officers. The auditors unqualified tax audit report will provide a reasonable assurance to the tax authorities that the tax statements do not contain any material misstatement, and therefore, such statements form a valid basis for determination and payment of relevant taxes by tax payer without any need for modification by the tax authorities.
b. There will be a set of three documents subject to tax audit namely, the income tax return,
monthly sales tax cum federal excise duty return and statement of additional information (collectively referred to as tax statements)
c. The statement of additional information to be prepared and submitted by the taxpayer will
include all the information deemed necessary for the purposes of tax audit. This statement also helps the auditor to perform his audit procedures necessary to check information in the tax returns filed by the tax payer.
d. Such statement of additional information shall include, but not be limited to, the accounting
policies, break down of the information on different components of the financial statements, trend and ratio analysis, explanations regarding any significant variations compared to corresponding figures, information and explanations on any unusual and significant transactions, information on related parties and transactions, reconciliation between the financial statements and tax returns and any further information deemed necessary by the tax auditor.
e. Such statement of additional information would serve to create a bridge between the
accounting income and the taxable income. It will also bridge between production and sales as reported in accounts and tax returns. Since the statement of additional information would be audited, a reasonable assurance regarding the fairness of the taxable income would be obtained.
f. The auditor would give his opinion on the information required to arrive at the taxable income
and sales tax and federal excise duty payable by issuing a signed report thereon. The report shall explicitly state:
a. whether or not the income tax return and sales tax cum federal excise duty returns are in
agreement with the details provided in the statement of additional information; b. whether or not the statement of additional information contains information as required by
the Tax Audit Framework applicable to the taxpayer; and c. whether or not the information contained in the statement of additional information is fairly
stated in all material respects. g. The tax audit report shall be addressed to the Commissioner of Income tax or Collector of
Sales tax, as the case may be.
h. The auditor’s responsibility shall be to issue a report on the tax statements based on the results of audit procedures performed by him and using his professional judgment. The responsibility of final assessment of income and tax payable remains with the relevant tax officials of the FBR.
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i. The relevant officer of tax department shall issue the order either accepting or altering the tax return submitted by the taxpayer and, the tax auditor, in no way, shall be responsible for the content of the order issued except to the extent of the audit report issued by him.
j. Any matter of contention regarding taxability or non-taxability of a particular item shall be
contestable in various legal arenas between the taxpayer and the tax department in the same manner as laid down in Income Tax Ordinance 2001, Sales Tax Act 1990 and Federal Excise Act 2005.
k. To ensure independence of the tax auditor, the statutory auditor or tax advisor of a company
shall not be appointed as Tax Auditor of that particular company. The decision of selection of auditor will lie with the FBR having regard to particular circumstances of each case. For this purpose, the auditor will give declaration before his appointment, format of which has been specified in Annexure B.
l. The firm of Chartered Accountants who is offered an engagement by FBR to carry out the tax
audit will perform appropriate checks to ensure independence of the firm with regard to the tax payer, before providing their consent. The procedures performed to check independence and possible conflict of interests will be appropriately documented.
m. The FBR shall issue an engagement letter to the tax auditor and the taxpayer setting out the
nature, scope and timing of the tax audit engagement.
n. The form of report shall be in the prescribed format attached as Annexure C and/or Annexue D, as the case may be. The tax statements in the prescribed form prepared by the tax payer and covered by the audit report shall be annexed to the same.
o. The tax auditor may be appointed at any time after the filing of tax returns.
p. The FBR shall have the sole discretion for selecting the companies for conducting tax audit.
The Institute will provide information available with it relating to the chartered accountant firms, at the request of the FBR.
q. Statement of additional information shall be prepared and submitted by the tax payer to the
tax auditor, signed by the Chief Executive Officer and Chief Financial Officer of the company. In the absence of either of them, signed by a director of the company, supporting the return of income filed. Such statement will effectively provide details relating to the line items in its balance sheet and profit and loss components.
r. Audit of “Tax Statements” will encompass examination of the return of income, sales tax cum federal excise duty return and statement of additional information with the audited financial statement, books of account, related records and documents by performing such audit procedures as considered appropriate under the circumstances by the tax auditor in accordance with the Tax Audit Framework. Management of a tax payer is responsible for the preparation and fair presentation of these “Tax Statements” in accordance with the requirements of Income Tax Ordinance 2001, Sales Tax Act 1990 and Federal Excise Act 2005.
s. A pre-audit meeting will be undertaken amongst the tax auditor, the taxpayer and the
concerned tax officials, preferably Commissioner of Income Tax / Collector of Sales Tax & Federal Excise, for the purpose of risk evaluation based on past year(s) records, in order to finalize the ‘Statement of Additional Information’ to be audited.
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t. A tax auditor appointed under this framework will not express an opinion on the amendments emanating from difference of opinion between the tax department and taxpayer on the tax treatment for any item as disclosed in the return of income. However, the auditor will provide information relating to facts of the matter to the Commissioner of Income Tax / Collector of Sales Tax & Federal Excise including a schedule explaining the history of the said matter in the past year(s).
u. The audit of compliance to the withholding tax provisions (except for the transactions verified
by the tax auditor on test basis), shall be outside the scope of this frame work.
v. Audit of the taxpayer will be carried out at the premises of the taxpayer
w. A tax auditor shall obtain representation letter from the management of the tax payer when the audit is completed. The date of the management representation shall be as near as practicable to, but not after the date of the auditor's report. The management representation shall be for tax audit period(s) referred to in the auditor’s report.
x. For the purpose of guidance following documents have been suggested:
• Independence declaration to be issued by tax auditor
• Engagement letter to be issued by the FBR
• Statement of additional information for taxation prepared by the taxpayer
• Audit report to be issued by the tax auditor
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3. STATEMENT OF ADDITIONAL INFORMATION
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3. STATEMENT OF ADDITIONAL INFORMATION
There will be a statement of additional information prepared and submitted by the tax payer to the tax auditor supporting the return of income filed. Such statement will effectively provide details relating to the line items in its balance sheet and profit and loss components. In view of the varied nature of businesses and sectors of economy, under this framework, separate models of statement of additional information have been developed to make these relevant for respective sectors. In the Annexure E-J, the model statements of additional information are attached for companies falling in sectors of:
• Manufacturing (Annexure E)
• Services (Annexure F)
• Banking (Annexure G)
• Insurance (Annexure H)
• Oil & Gas Exploration (Annexure I)
Statement of additional information for sales tax & federal excise purposes have also been developed (Annexure J)
The information requested in respect of the income tax, sales tax and federal excise duty is under the headings:
1. General Information
2. Accounting Policies and Methodology
3. Profit and Loss Account
4. Balance Sheet
5. Trends, Ratios and Analysis
6. Related Party Transactions
7. Non-recurring Transactions
8. Reconciliation with the Tax Return
The basis of preparation of statement of additional information will be the company’s books and records and the statement will be in accordance with the company’s financial statements for the relevant period as applicable. In case of any anomaly or where clarity is not available to the tax payer, the basis used to present information in the statement of additional information will be clearly stated.
For companies not clear as to which sector’s statement of additional information is to be used, they should select sector that most closely relates to their business.
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While preparing the statement of additional information companies may tailor the nomenclatures used in the model statements to suit their equivalent terminologies as used in their financial statements and books and records.
The statement of additional information will be signed by the Chief Executive Officer and Chief Financial Officer of the Taxpayer. In the absence of either of them it will be signed by a director of the Taxpayer.
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4. CONTENTS OF ENGAGEMENT LETTER FOR AUDIT UNDER SECTION 177(8) OF THE INCOME TAX ORDINANCE, 2001 AND
SECTION 32A OF THE SALES TAX ACT 1990
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4. CONTENTS OF ENGAGEMENT LETTER FOR AUDIT UNDER SECTION 177(8) OF THE INCOME TAX ORDINANCE 2001, SECTION 32A OF THE SALES TAX ACT 1990 AND SECTION 46(4) OF FEDERAL EXCISE ACT 2005
Objective and scope of the Tax Audit
1. The tax auditor shall examine the tax statements for taxation purposes with the underlying financial statements, books of account, records and documents of the taxpayer (specify name, N.T.N. and STRN) with a view to enable him to achieve a reasonable assurance that such return is properly stated in accordance with the requirements of the Tax Audit Framework. The auditor shall issue report on such return of income / sales at the conclusion of the audit. Such auditor’s report may form the basis for the Deputy Commissioner of Income Tax and Deputy Collector of Sales Tax & Federal Excise to frame his findings. After receiving the report of the auditors, respective tax officials will issue a notice to the taxpayer and proceed in accordance with the procedure laid down in the statue.
2. Audit of “Tax Statements” will encompass examination of the return of income, sales tax cum federal excise duty return and statement of additional information with the audited financial statements, books of account, related records and documents by performing such audit procedures as considered appropriate under the circumstances by the tax auditor in accordance with the Tax Audit Framework. In designing the audit procedures, the tax auditor will consider the possible audit procedures (as considered appropriate by the auditor keeping in view the knowledge of the business of that taxpayer), together with the specific instructions, if any, regarding any areas of examination that need special focus, specified by the FBR.
3. An examination in accordance with the Tax Audit Framework is designed to provide reasonable, and not absolute, assurance that the return of income, production and sales along with the underlying financial statements which form the basis of such return are fairly stated. Reasonable assurance is a concept relating to the accumulation of audit evidence necessary for the auditor to form an opinion.
4. Auditors report will be addressed to the Commissioner of Income Tax/Collector of Sales Tax as the case may be, and shall include a clear expression of opinion on the fairness of the return of income, sales tax cum federal excise duty returns and statement of additional information.
5. In formulating the audit approach for the audit of the “Tax Statements”, it is necessary to understand that the tax auditor would need to apply tests that are considered appropriate by him using his professional judgment, on the information prepared by the taxpayer.
6. In giving the report, the tax auditor will have to use his professional skill and expertise and apply such audit tests as the circumstances of the case may require. The extent, nature and timing of audit procedures that are invariably applied on test basis depend on the risks identified by the tax auditor, and his understanding of the design and effectiveness of internal control in the company.
7. It is essential to note that it is the primary responsibility of the taxpayer to prepare the information in such manner so that the tax auditor can verify the compliance thereof. The extent of check undertaken would have to be indicated by the tax auditor in the working papers and audit notes. The tax auditor would be well advised to design tax audit program as would reveal the extent of checking and to ensure adequate documentation in support of the information being verified.
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Responsibility of the Management
8 Management is responsible for the preparation and fair presentation of these “Tax Statements” in accordance with the requirements of Income Tax Ordinance 2001, Sales Tax Act 1990 and Federal Excise Act 2005. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of tax statements that are fairly stated, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.
9. “Tax Statement” will be prepared by the management from its books and records. The accounting principles will be the same as used in the preparation of financial statements and Statement of Additional Information in accordance with the requirements of Income Tax Ordinance 2001, Sales Tax Act 1990 and Federal Excise Act 2005.
Responsibility of the Tax Auditor
10 By accepting the tax audit under section 177(8) of the Income Tax Ordinance 2001, section 32A of Sales Tax Act 1990 and section 46(4) of Federal Excise Act 2005, the auditor only accepts the responsibility of carrying out the audit in accordance with this Tax Audit Framework. The basic ethical principles that govern a usual audit are:
(a) Independence;
(b) Integrity;
(c) Objectivity;
(d) Professional competence and due care;
(e) Confidentiality;
(f) Professional behaviors; and
(g) Technical standards.
While a tax audit carried out under the above principles may lead to improvement in the tax revenue for the FBR, there is no assurance that such an increase will occur in all or any of the cases of audit.
Professional Skepticism
11. The auditor should plan and perform an audit with an attitude of professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated.
Inherent limitations
12. Owing to the limitation of time, difficulties in getting the relevant, reliable and timely information required for an appropriate examination and other inherent limitations of any audit, there is an inherent risk that even some misstatements in the tax statements may remain undiscovered. Thus, such an examination should not be expected to result in uncovering all the cases of tax
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concealment or evasion. In fact, due to the inherent limitations of this nature of engagement, it is possible that even some material errors and irregularities will remain undiscovered.
Inherent limitations that affect the auditor’s ability to detect misstatements result from factors such as:
• The use of testing • The inherent limitation of any accounting system and internal control system (for
example, the possibility of collusion) • The fact that most audit evidence is persuasive rather than conclusive in nature.
Planning
13. The auditor should plan the audit so that the engagement will be performed in an effective manner. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan. In establishing the overall audit strategy, the auditor shall identify the characteristics of the engagement that define its scope, ascertain the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required, consider the factors that, in the auditor’s professional judgment, are significant in directing the engagement team’s efforts, consider the results of preliminary engagement activities and, where applicable and ascertain the nature, timing and extent of resources necessary to perform the engagement.
Documentation
14 The auditor should prepare, on a timely basis, audit documentation that provides: (a) A sufficient and appropriate record of the basis for the auditor’s report; and (b) Evidence that the audit was performed in accordance with tax audit framework.
Indemnity
15 The FBR hereby indemnifies the auditors for any liability beyond their responsibilities assumed in through this Framework. In any case, the maximum liability of the audit firms and their partners will not exceed the amount of fees received by them for the tax audit.
Time Frame
16. While each tax auditor will agree with the Commissioner /Collector, the time frame for completion of the audit and submission of audit report, it is recognized that due to the inherent problems that may be encountered in gathering audit evidence, as the system is being introduced for the first time, inordinate delays may occur due to unanticipated difficulties. In all such cases the tax auditor will keep the Commissioner /Collector informed of such matters.
Audit fees
17. Fee will be charged on the basis mentioned in Section 8 of this framework and has to be specified in each engagement letter accordingly.
18. Fifty percent of the audit fee shall be paid in advance by FBR, the balance amount shall be paid by FBR on submission of the audit report.
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19. The work undertaken by the auditor to issue the report is permeated by judgment, in particular regarding:
a) the gathering of audit evidence for example, in deciding the nature, timing and extent of audit procedures; and
b) the drawing of conclusions based on the audit evidence gathered, for example, assessing the reasonableness of the estimates made by management in preparing the financial statements.
20. By accepting this engagement, the tax auditor accepts the responsibility of performing a tax audit as described above.
21. The engagement letter will be issued by FBR and accepted by both tax auditor and tax payer.
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5. AUDIT REPORT
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5. AUDIT REPORT
As explained in the audit concept above the tax auditor is required to provide reasonable assurance through confirmation or otherwise in respect of three matters, which are: • whether or not the income tax return and sales tax cum federal excise duty returns are in
agreement with details provided in the statement of additional information; • whether or not the statement of additional information contains information as required by the Tax
Audit Framework applicable to the tax payer; and
• whether or not the information contained in the statement of additional information is fairly stated in all material respects
Each of the above statements is explained as follows:
whether or not the income tax return and sales tax cum federal excise duty returns are in agreement with details provided in the statement of additional information
Here the tax auditor is required to compare and confirm that the amounts in the returns of income tax, sales tax and federal excise duty are in agreement with the respective amounts disclosed and verified by the tax auditor in the statement of additional information. The objective is to ensure that the taxable income / taxable supplies are supported with books of account and records of the taxpayer and there is no inaccuracy in this regard vis a vis statement of additional information that has been verified.
whether or not the statement of additional information contains information as required by the Tax Audit Framework applicable to the taxpayer
The model statement of additional information requires certain specific details. The basis of preparation of statement of additional information is given in the preceding section. With this background, the tax auditor is required to confirm or otherwise that statement of additional information is prepared as required.
whether or not the information contained in the statement of additional information is fairly stated in accordance with Tax Audit Framework.
This statement is the crux of tax auditor’s work. Here, based on the verification procedures, the tax auditor would provide his opinion as to whether or not such information is fairly stated. The meaning of “fairly stated” ’’ is taken to be that based on the procedures performed as considered appropriate by the tax auditor based on the guidance contained in the International Standards on Auditing (ISA) and the guidance issued by the Institute in this framework. It would also meant that the statement of additional information (attached as Annexure E to J of this framework and as amended from time to time) do not contain any
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material misstatement, and is consistent with the books and records of the company. Further, as a number of amounts presented will be from the company’s financial statements, in confirming such information to be ‘fairly stated’, the tax auditor will also be confirming that the policies followed for computation of such numbers are the same as stated in the basis of preparation of financial statements and such policies are consistent with applicable accounting framework in Pakistan.
The audit report formats are attached as Annexure “C and D”.
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6. THE PROCESS OF TAX AUDIT
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6. THE PROCESS OF TAX AUDIT
6.1 Introduction
Following paragraphs describe the process for the conduct of a tax audit. In this context, the ‘process’ means the interaction between the taxpayers and the tax department for the conduct of a tax audit. Description in the aforesaid paragraphs is general, however on a case to case basis both the participants may decide on any variation in that process. Nevertheless variations should consistent with the general principles laid down in these paragraphs.
6.2 Pre-audit meeting / risk evaluation
6.2.1 A pre-audit meeting will be undertaken amongst the tax auditor, the taxpayer and the concerned tax officials. It is expected that in that meeting all the concerned officers/ consultant relevant to a particular tax audit of the tax payer should be present. These persons should preferably include Commissioner of Income Tax / Collector of Sales Tax & Federal Excise. Tax auditor will be represented by ‘Engagement Partner’ for that assignment.
6.2.2 Risk evaluation in case of a particular taxpayer should preferably take into account:
i. Past year(s) records / history including the past year(s)assessment / order-in-original / order-in-appeal;
ii. Financial Statements and other information filed along with the return; iii. Details of payment of taxes including advance taxes; iv. Any other detail or information / data relevant to the taxpayer that is available
with the tax department.
6.2.3 On the basis of aforesaid information, the tax department and the tax auditor will identify significant audit risks in the tax audit. The tax auditor should document the key risks and salient features of the discussion in the pre-audit meeting. Based on such risk evaluation, the tax auditor and relevant officials of the tax department will finalize the ‘Statement of Additional Information’ to be audited as described in Section 3 of this framework. That data of information to be audited is effectively the broad ‘Terms of Reference’ for that audit.
6.2.4 The taxpayer is not expected to be involved in the risk-evaluation process.
6.2.5 For each engagement, the Commissioner / Collector and tax auditor shall place on record the ‘Statement of Additional Information’ to be audited.
6.2.6 This information has to be arranged within 20 days of the issuance of the engagement letter for a particular case.
6.3 Audit of the Statement of Additional Information by the Tax auditor
6.3.1 Commissioner / Collector shall arrange a meeting between the taxpayer and / or its consultant and the engagement partner of the tax auditor. 6.3.2 Tax auditor shall undertake all or most of the audit procedures, preferably at the premises of the taxpayer or the place where the relevant information is maintained. Tax auditor shall, however, be entitled to conduct the audit procedure at his offices or at the tax offices as is deemed fit.
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6.3.2 Tax auditor shall have the power to ask for any information that he requires for the purpose of tax audit.
6.3.3 Specific audit procedures shall be determined by the tax auditor on case to case basis However, the terms of reference shall generally allow but not limited to physical verification of assets, cash counts, direct verification from the customers or supplier, confirmation of balances from the banks and other institutions, seeking expert opinion on various aspects, confirmation from local or international associates and subsidiaries and related parties.
6.4 Preparation and discussion on the draft report
6.4.1 On the basis of procedures carried out with reference to statement of additional information to be audited, the tax auditor shall prepare a draft report along with the matters requiring special consideration and submit the same to the Commissioner / Collector concerned.
6.4.2 Within a week of the submission of the said report the Commissioner / Collector shall call a meeting of the taxpayer and the tax auditor where the issues arising from the draft report shall be communicated to the taxpayer. Taxpayer shall be required to clarify the position with regard to issues communicated. That meeting shall not be for the purposes of seeking rebuttal or replies to various issues raised in the draft report. This will be restricted to bringing in harmony the factual aspects / differences.
6.4.3 Taxpayer will be provided 15 days to clear such factual aspects.
6.5 Preparation of Final Report
6.5.1 On the basis of the draft report and replies on factual aspects, within 15 days after the reply from the taxpayer the tax auditor shall finalize the final report and submit the final report along with all the relevant information to the concerned Commissioner / Collector. The report shall be in the form as prescribed in Section 5 of this Framework. All the relevant information shall also be placed and properly identified for the purposes of reference.
6.6 While each tax auditor will agree with the Commissioner / Collector, the time frame for completion of the audit and submission of audit report, it is recognized that due to the inherent problems that may be encountered in gathering audit evidence, as the system is being introduced for the first time, inordinate delays may occur due to unanticipated difficulties. In all such cases the tax auditor will keep the Commissioner /Collector informed of such matters.
6.7 No role subsequent to submission of Final Report
6.7.1 The role of tax auditor shall stand completed with the submission of final tax audit report as stated in paragraph 6.5 above. There will be no requirement for presence in person or furnishing any information during the course of adjudication / appeal and in any other subsequent proceeding.
6.7.2 No tax audit or verification of tax statements can be carried out by any person subsequent to the submission of final audit report, provided that Commissioner / Collector may carry out further verification of tax statements subsequent to the submission of final audit report with the prior consent of the tax auditor while explaining reasons of it and the specific consent of the FBR.
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7. EXCLUSION / EXCEPTIONS
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7. EXCLUSION / EXCEPTIONS
(i) Legal issues
A tax auditor appointed under this framework will not express an opinion on the issues emanating from difference of opinion between the tax department and taxpayer on the tax treatment for any item as disclosed in the return of income. The auditor’s role will be restricted to provide information relating to facts of the matter to the Commissioner of Income Tax / Collector of Sales Tax & Federal Excise including a schedule explaining the history of the said matter in the past year / years.
(ii) Withholding tax audit
The audit of compliance to the withholding tax provisions, (except for the transactions verified by the tax auditor on test basis), shall be out side the scope of this frame work. However, FBR may appoint a firm of Chartered Accountants to conduct audit of withholding tax compliance on the terms and conditions to be separately agreed on case to case basis.
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8. FEES
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8. FEES
The level of fee is to be mutually agreed between the tax auditor and FBR, which largely depends upon the volume of work involved and estimated time to be incurred on the audit engagement. In principle it is however suggested that there has to be a minimum threshold of tax audit fee. To achieve the desired objective, the following minimum tax audit fee is suggested (which may be increased by consent having regard to specific circumstances of an audit engagement).
Schedule of Minimum Tax Audit Fee:
Type of entity Minimum Fee
Listed companies
Turnover up to 500 million 350,000
Turnover over 500 million up to 1 billion 450,000
Turnover over 1 billion up to 3 billion 550,000
Turnover over 3 billion up to 5 billion 900,000
Turnover above 5 billion 1,350,000
Type of entity Minimum Fee
Economically Significant Entities
Turnover over 1 billion up to 3 billion 550,000
Turnover over 3 billion up to 5 billion 900,000
Turnover above 5 billion 1,350,000
Medium Sized Entities
Turnover over 200 million up to 500 million 275,000
Turnover over 500 million up to I billion 350,000
Small Sized Entities 175,000
The out of pocket expenses shall be reimbursed at 10% of the tax audit fee. Outstation traveling (including boarding and lodging) will be reimbursed on actual.
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9. PROCEDURES FOR TAX AUDIT
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9. PROCEDURES FOR TAX AUDIT
Draft audit procedure is suggested as follows:
1. Planning
Review, analysis and comparison of industry information e.g.
Industry surveys, rankings, statistics, ratios, forecasts
Industry trade publications, magazines and publications
Tax Department’s Data
Major industry issues
Taxpayer-specific information
Return of income / supplies and financial statements
Key performance indicators
Products, process and technology structure
Understand taxpayer’s historical performance
Profitability trend
Taxable income to accounting profits
Dutiable / Taxable Supplies to Total Turnover
Taxpayer’s compliance history / trend
Key issues involved in preceding audits / assessments
Risk Profiling - Identify core areas / transactions
Routine transactions
Non-routine transactions
Findings, discussions with Commissioner / Collector and conclusions
2. Audit Plan
Determination of information required
Design procedures for significant classes of transactions
Develop materiality levels for core areas / transactions
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Discuss and agree with the Commissioner / Collector
3. Execution of Audit Plan
Assess core areas / transactions
Existence
Completeness
Accuracy
Valuation
Ownership
Third party verifications
Inspection
Physical verification
Compliance to tax laws
Obtain substantive audit evidences
Review the subsequent events
4. Findings, Conclusions & Reporting
Conformity of contents of return with relevant provisions of law
Errors, omission, misstatements and concealments detected during audit process
Appropriateness of evidence obtained
Tax implications of omission, misstatement and concealments under relevant provisions
Review of findings – four eye test
Preparation and submission of draft audit report to the Commissioner / Collector
Discussions with the Commissioner / Collector and taxpayer on draft audit report
Revision (if any) and submission of final audit report to the Commissioner / Collector
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10. SELECTION OF AUDITOR AND AUDITEE FOR TAX AUDIT
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10. SELECTION OF AUDITOR AND AUDITEE FOR TAX AUDIT
A. General
1. Statutory auditor or tax advisor of a company shall not be appointed as Tax Auditor of that particular company.
2. Firm whose any of its partner is working in two firms will not be considered for appointment as Tax Auditor if his other firm is also the statutory auditor or tax consultant.
3. Network firms registered with the Institute may also be considered as a partnership firm for the purpose of appointment as Tax Auditor.
4. Selection of Audit firm has to be the sole discretion of FBR without any direct or indirect involvement of the Institute.
5. In order to avoid discretionary allocation of auditee to a specific firm or firms, selection of firm may also be made on computerized basis.
B. Selection of auditor
Financial sector
• For audit of Banks, firms may be selected through computer balloting from Category ‘A’, ‘B’, ‘C’ of SBP Panel of Auditors
• For audit of NBFCs, Insurance, Modarabas and other companies in the financial sector,
firms may be selected through computer balloting from Category ‘A’, ‘B’ & ‘C’ of SBP Panel of Auditors
Non Financial sector
• For audit of Listed and Economically Significant Entities (ESE), firms may be selected through computer balloting from ICAP QCR rated partnership firms
• For audit of Medium Size Entity (MSE), firms may be selected through computer balloting
from ICAP QCR rated partnership and sole proprietorship firms
• Small Size Entity (SSE) – Non QCR rated sole proprietorship firms and partnership firms
C. Selection of auditee
FBR may classify the taxpayers under the following categories:
Financial sector
• Banks / DFIs (Total 56)
• Other Financial institutions (Insurance, Modarabas, Mutual Funds, Leasing, Investment Banks) (Total 273)
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FBR may further classify the above companies according to their asset base, number of branches etc.
Non Financial sector
1. Listed companies (divided into sectors as per Stock Exchange) – Total 489 companies
2. Economically Significant Entities (ESEs) (divided into sectors as per Stock Exchange) – FBR need to identify such companies from their database
3. Medium Size Entities (MSEs) (divided into sectors as per Stock Exchange) – FBR need to identify such companies from their database
4. Small Size Entities (SSEs) (divided into sectors as per Stock Exchange) – FBR need to identify such companies from their database
ESE (Definition as per 5th Schedule of Companies Ordinance, 1984)
An entity is considered to be economically significant if it has: (i) turnover in excess of Rs. 1 billion, excluding other income; (ii) number of employees in excess of 750; (iii) total borrowings (excluding trade creditors and accrued liabilities) in excess of Rs. 500
million.
In order to be treated as economically significant any two of the criterion mentioned in (i), (ii) and (iii) above have to be met. The criteria followed will be based on the previous year’s audited financial statements. Entities can be delisted from this category where they do not fall under the aforementioned criteria for two consecutive years.
MSE (Definition as per 5th Schedule of Companies Ordinance, 1984)
A Medium-Sized Entity (MSE) is an entity that:
(a) is not a listed company or a subsidiary of a listed company; (b) has not filed, or is not in the process of filing, its financial statements with the Securities
and Exchange Commission of Pakistan (SECP) or other regulatory organisation for the purpose of issuing any class of instruments in a public market;
(c) does not hold assets in a fiduciary capacity for a broad group of outsiders, such as a
bank, insurance company, securities broker/dealer, pension fund, mutual fund or investment banking entity;
(d) is not a public utility or similar entity that provides an essential public service; (e) is not economically significant on the basis of criteria as defined in paragraph 3 below;
and
(f) is not a Small-Sized Entity (SSE) as defined in paragraph 4 below.
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SSE (Definition as per 5th Schedule of Companies Ordinance, 1984)
A Small-Sized Entity (SSE) is an entity that:
(i) has paid up capital plus undistributed reserves (total equity after taking into account any dividend proposed for the year) not exceeding Rs. 25 million; and
(ii) has employees not exceeding two hundred and fifty at any time during the year; and (iii) has annual turnover not exceeding Rs. 250 million, excluding other income.
In order to qualify as a Small-Sized Entity, both of the above mentioned-conditions must be satisfied.
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Annexure “A”
Independence Declaration
The Date: ____________
Federal Board of Revenue Letter Ref: ________
(Address)
Dear Sir
Name of Company ____________
Tax Year ____________
In connection with our appointment as tax auditor of the above named company for the tax year ……….. we wish to confirm that:
• the firm is independent in accordance with the independence requirements of the Code of Ethics issued by The Institute of Chartered Accountants of Pakistan;
• the firm was not the statutory auditor of the company for the year ended ….; and
• the firm has neither provided taxation services during the tax year ………. nor is providing taxation services to the company.
Signature of Firm
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Annexure “B”
ON FBR’S LETTERHEAD
ENGAGEMENT LETTER
(Name of Tax Auditor) (Name of Taxpayer)
Date
Dear Sir
1. We wish to confirm our understanding of the Tax Audit engagement through this letter.
2. Tax Audit comprises of audit of Tax Statements in accordance with the terms narrated in this letter.
3. In accordance with the responsibilities to report to the Commissioner /Collector under the Tax Audit Framework, tax auditor will conduct the tax audit of ___________________ as referred to in the Tax Audit Framework for the tax year________. Upon completion of the audit, tax auditor will issue audit report on Tax Statements.
4. The audit of compliance to the withholding tax provisions (except for the transactions verified by the
auditor on test basis),, shall be outside the scope of this frame work. 5. In arriving at the opinion, tax auditor is required to consider the following matters, and to report on
any in respect of which the tax auditor is not satisfied:
i. the income tax return and sales tax cum federal excise duty returns are in agreement with details provided in the statement of additional information;
ii. the statement of additional information contains information as required by the Tax Audit Framework applicable to the tax payer; and
iii. the information contained in the statement of additional information is fairly stated in all material respects.
6. The objective of tax audit is the issuance of opinion on the tax statements. The audit will be conducted in accordance with the requirements of Tax Audit Framework. The framework requires that the tax auditor plan and perform the audit to obtain reasonable assurance whether the tax statements are fairly stated. An audit includes examining, on a test basis, evidence supporting the amounts and the disclosures in the tax statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall tax statements presentation.
7. The preparation of tax statements is the responsibility of the of the tax payer. In this regard, the management is responsible for properly recording all transactions in the accounting records and for establishing and maintaining internal control sufficient to permit the preparation of tax statements in conformity with relevant tax laws. The audit of the tax statements does not relieve management of this responsibility. The management is also responsible for making available to the tax auditor,
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upon request, all of the original accounting records and related information, and personnel to whom the tax auditor may direct inquiries. Further, that all detailed accounting schedules, in support of each component of the balance sheet and the profit and loss account along with the tax statements complying with applicable disclosure requirements will be prepared by the Taxpayer.
8. As considered necessary by the tax auditor and based on the guidance from the applicable International Standards on Auditing, the tax auditor will make specific inquiries of management and others about the representations embodied in the tax statements and the effectiveness of internal control over tax statements reporting. Auditing standards also require to obtain a representation letter covering matters material to the tax Statements from certain members of management together with information of uncorrected misstatements in the tax statements that are immaterial. The results of the audit tests, the responses to the inquiries and the written representations of management comprise the evidential matter upon which the tax auditor intends to rely in forming the opinion on the tax statements.
9. The management of the Taxpayer is responsible for safeguarding the Company’s assets and for the prevention and detection of fraud and error. The management is also responsible for identifying and ensuring that the Company complies with the laws and regulations applicable to its activities. The tax auditor will design the audit to obtain reasonable, but not absolute, assurance of detecting errors or fraud that would have a material effect on the tax statements as well as other illegal acts having a direct and material effect on the tax statements. The audit will not include a detailed audit of transactions, such as would be necessary to disclose errors or fraud that did not cause a misstatement of the tax statements. It is important to recognise that there are inherent limitations in the auditing process. Audits are based on the concept of selective testing of the data underlying the tax statements, which involves judgment regarding the areas to be tested and the nature, timing, extent and results of the tests to be performed. Audits are, therefore, subject to the limitation that errors, fraud or other illegal acts having a direct and material financial statement impact, if they exist, may not be detected. Because of the characteristics of fraud, particularly those involving concealment through collusion and falsified documentation, an audit designed and executed in accordance with generally accepted auditing standards might not detect a material fraud. Further, while effective internal control reduces the likelihood that errors, fraud or other illegal acts will occur and remain undetected, it does not eliminate that possibility. For these reasons tax auditorcannot ensure that errors, fraud or other illegal acts, if present, will be detected. However, tax auditor will communicate usany illegal act, material errors, or evidence that fraud may exist which is identified during the audit.
10. The audit is not designed to identify weaknesses in the Company’s system of internal financial controls. The review of internal financial control systems is performed only to the extent required to express an opinion on the Taxpayer’s tax statements. This consideration will not be sufficient to enable tax auditor to provide assurance on the effectiveness of internal control over financial reporting.
11. The audit report is intended for the benefit of only those to whom it is addressed. The audit will not be planned or conducted in contemplation of reliance by any third party or with respect to any specific transaction. Therefore, items of possible interest to a third party will not be specifically addressed and matters may exist that would be assessed differently by a third party, possibly in connection with a specific transaction.
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12. All data relating specifically to the Taxpayer’s business and any other information which reasonably should be understood to be confidential to the Taxpayer are confidential information of the Taxpayer (‘Confidential Information’). Tax auditor will use the ‘Confidential Information’ only in relation to the provision of services provided by Tax auditor to the FBR and will not disclose such ‘Confidential Information’ to any third party without the Taxpayer’s prior written consent save as provided in this letter. Tax auditor will not be obligated to treat as confidential any information disclosed by the Taxpayer which: (i) Is rightfully known prior to its disclosure by the Taxpayer; (ii) is released by the Taxpayer to any other person or entity without restriction; (iii) is independently developed by Tax auditor without any use of or reliance on ‘Confidential Information’ ; (iv) is in or enters the public domain without breach of this confidentiality obligation; and / or (v) may be lawfully obtained from any third party.
13. Tax auditor may disclose ‘Confidential Information’ and personal data including information subject to privilege (i) to third parties such as professional advisers; and (ii) national and international regulatory bodies e.g. the Institute of Chartered Accountants of Pakistan, the Securities and Exchange Commission of Pakistan, the State Bank of Pakistan etc., or courts as may be required by any law, statute, rule or regulation, professional standards including any foreign law, statute, rule or regulation as long as it is determined by us to be applicable to us. Tax auditor may also share ‘Confidential Information’ and personal data with other firms (meaning an affiliate of the firm conducting the tax audit) for independence, risk management and quality review purposes.
14 The working papers and files for this engagement created by the tax auditor during the course of
the audit, including electronic documents and files, are the sole property of Tax Auditor and would be subject to Quality Control Review by the Institute of Chartered Accountants of Pakistan (ICAP) without any reference to the Taxpayer.
15. The working paper files are retained for a period of only five years, after which these are destroyed.
This is done to manage the physical bulk of files and documentation, and reduce the cost of storage. However, should FBR require tax auditor to maintain the working papers beyond the above period, tax auditor will make a charge in respect thereof.
16. During the engagement tax auditor may from time to time communicate with Taxpayer electronically. However, as the electronic transmission of information cannot be guaranteed to be secured or error free and such information could be intercepted, corrupted, lost, destroyed, arrive late or be incomplete or otherwise be adversely affected or unsafe to use. Accordingly, while tax auditor will use reasonable procedures to check for the then most commonly known viruses before sending information electronically, tax auditor will not have any liability to taxpayer arising from or in connection with the electronic communication of information to taxpayer or FBR.
17. Any additional services that FBR may request and that tax auditor agrees to provide will be the subject of separate written arrangements.
.
18. Fee of the Tax audit will be Rs._________. Fifty percent of the audit fee shall be paid in advance by FBR, the balance amount shall be paid by FBR on submission of the audit report.
19. The contract formed by this engagement letter, when accepted, shall be governed by, and construed in accordance with the laws of Pakistan.
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20. Please acknowledge receipt of this letter and your agreement to the terms of the engagement as set out herein by signing the enclosed copy of the letter in the space provided. Kindly return one copy to our offices and retain one copy for your records.
.
Yours truly
Accepted by:
_____________ _____________
Tax Auditor Taxpayer
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Annexure “C”
Auditors’ Report to the Commissioner of Income Tax on Tax Statements
We have examined the annexed income tax return and statement of additional information for taxation purposes (referred to as Tax Statements) of _______________________ (mention name of tax payer with NTN) for the Tax Year ___________. Management’s Responsibilities
Management is responsible for the preparation and fair presentation of these tax statements in accordance with the requirements of Income Tax Ordinance, 2001 . This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of tax statements that are free from misstatement.
Basis of Opinion In accordance with our responsibilities as stated above we have performed procedures to obtain evidence about the amounts and disclosures in the tax statements. The procedures selected depended on our judgment, including the assessment of risks of material misstatements in the tax statements, whether due to fraud or error.
Our engagement provides reasonable assurance. An auditor cannot obtain absolute assurance because there are inherent limitations in the examination process that affect our responsibility to detect material misstatements. These inherent limitations result from the procedures performed, use of testing, inherent limitations of internal control and the fact that most evidence is persuasive rather than conclusive. Accordingly, our examination is not an absolute assurance that tax statements are free from material misstatement. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our report. Auditor’s Opinion
In our opinion:
a) the income tax return is in agreement with details provided in the statement of additional information;
b) the statement of additional information contains information as required by the Tax Audit Framework applicable to the tax payer; and
c) the information contained in the statement of additional information is fairly stated in all material respects in accordance with the Tax Audit Framework.
(The above statements from shall be tailored where the answer is in negative with full details why the auditor has concluded for such report.)
Signature of Firm Name of engagement partner Date: Place:
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Annexure “D”
Auditors’ Report to the Collector of Sales Tax on Tax Statements
We have examined the annexed sales tax cum federal excise duty return and statement of additional information for taxation purposes (referred to as Tax Statements) of _______________________ (mention name of tax payer with STN) for the Tax Year ___________. Management’s Responsibilities Management is responsible for the preparation and fair presentation of these tax statements in accordance with the requirements of Sales Tax Act 1990 and Federal Excise Act 2005. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of tax statements that are free from misstatement. Basis of Opinion In accordance with our responsibilities as stated above we have performed procedures to obtain evidence about the amounts and disclosures in the tax statements. The procedures selected depended on our judgment, including the assessment of risks of material misstatements in the tax statements, whether due to fraud or error. Our engagement provides reasonable assurance. An auditor cannot obtain absolute assurance because there are inherent limitations in the examination process that affect our responsibility to detect material misstatements. These inherent limitations result from the procedures performed, use of testing, inherent limitations of internal control and the fact that most evidence is persuasive rather than conclusive. Accordingly, our examination is not an absolute assurance that tax statements are free from material misstatement. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our report. Auditor’s Opinion In our opinion:
d) the sales tax cum federal excise duty return are in agreement with details provided in the statement of additional information;
e) the statement of additional information contains information as required by the Tax Audit Framework applicable to the tax payer; and
f) the information contained in the statement of additional information is fairly stated in all material respects in accordance with the Tax Audit Framework.
(The above statements from shall be tailored where the answer is in negative with full details why the auditor has concluded for such report.)
Signature of Firm Name of engagement partner
Date: Place:
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Annexure “E”
MODELSTATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
TABLE OF CONTENTS
Serial Number Name of the attachment containing the additional information
1. General Information
2. Accounting Policies and Methodology
3. Profit and Loss Account
4. Balance Sheet
5. Trends, Ratios and Analysis
6. Related Party Transactions
7. Non-recurring Transactions
8. Reconciliation with the Tax Return Filed
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MODELSTATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
GENERAL INFORMATION
Income Tax Ordinance 2001; section reference
Description Information subject to audit
Name of the company
Registered address
National tax number
Status
Tax year
Nature of business
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MODELSTATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
ACCOUNTING POLICIES AND METHODOLOGY
Income Tax Ordinance 2001; section reference
Description Information subject to audit
S32, 33, 34, 35 & R32
Method of accounting
1. The company's policy statement pertaining to the method of accounting followed by the company, whether it is accrual based accounting or cash based accounting.
2
The company's policy statement pertaining to the method of computation of the cost of stock-in-trade, whether it is computed on the basis of absorption-cost method or prime-cost method.
3 The company's policy statement pertaining to the cost formula used to compute the value of stock, whether it is the FIFO method or the average-cost method.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
PROFIT AND LOSS ACCOUNT
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Sales 1. Reconciliation of sales as per invoice reports to sales as per the general ledger and financial statements.
2
Break-up of sales into sales falling under the normal tax regime and final tax regime, including local sales on which tax deducted at source constitute final tax, export sales and sales of commercial imports
3 Reconciliation of sales as per sales tax returns and as per the general ledger.
4 Reconciliation of sales as per sales tax returns and as per the income tax return.
Deductions from sales
1 Details regarding the nature and amounts of major components of deductions from sales, including discounts. Confirm whether such deduction and discounts form part of the sales invoice.
Purchases
1 Reconciliation of purchases of store and spares & stock in trade as per invoice reports to purchases as per the purchase ledger and accruals.
2 Reconciliation of purchase as per sales tax returns and as per the general ledger.
3 Break-up of purchases into local purchases and imports.
4 Break-up of imports into commercial import and own consumption.(Details of tax chargeable on commercial imports under final tax regime along with sales tax charged on actual value and on through value addition
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mechanism)
S36
Long term contracts
1 Copy of the particular long term contract.
2 Details of total cost allocated to the contract and incurred before the end of the tax year.
3 Total estimated cost at the beginning of the contract.
4 Tax chargeability of contracts whether falling under Final Tax Regime.
Cost of goods sold
1 Cost of imported goods sold.
2 Cost of manufactured goods sold.
3 Quantitative analysis of goods manufactured to ascertain goods sold along with reconciliation of the same with quantities of goods sold as per reports along with reasons for any significant variation.
4 Analysis of production loss for three years along with reasons for variation.
Administrative, distribution and other operating expenses
S21
Deductions not allowed
1 Amount of any tax, cess or rate paid or payable in Pakistan or any foreign country, the said tax, cess or rate being levied on profits or on the basis of profits.
2 Amount and break-up of taxes deducted at source.
3 Amount of any payments made by the company on which either tax has not been deducted or deposited at source.
R10 4 Amount of entertainment (and advertisement expenses) incurred during the year in
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contravention of the requirements of the Income Tax Ordinance, 2001.
5 Any amounts contributed to non-recognised provident funds, unapproved superannuation funds and unapproved gratuity funds.
6 Amount of contributions made to any fund established for the benefit of employees of the company in respect of which tax is not deducted under section 149 of the Income Tax Ordinance, 2001 on any payments made by the fund against which the recipient of the payment is chargeable under the head 'salary'.
7 Details of stock option, whether scheme is exclusive and company specific or based on group having multinational source. Details and amounts charged or taken through group charge back mechanism. Whether tax is considered as deductible on exercise of option or shares, etc and reported in periodical statements.
8 Amount of any fines or penalties paid or payable by the company for violation of any law, rule or regulation.
9 Amount of any expenditure incurred for the purposes other than in connection with business.
10 Amount of appropriations or amounts carried to a reserve fund or capitalised in any way.
11 Amount and description of expenditure under a single account head which in aggregate exceeds Rs. 50,000 made other than by a crossed cheque or cross banking instrument
12 Amount and description of payments in violation of the requirement of banking channels for amounts exceeding Rs. 15,000.
13 Amount and description of expenditures of a capital nature other than that for which deductions are specifically allowed under the
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Income Tax Ordinance, 2001.
14 Amount of salaries, wages and other benefits paid to the employees of the company in contravention of the requirements of the Income Tax Ordinance, 2001.
S26 Scientific research expenditure
1 Amount of the scientific expenditure incurred during the year.
S27 Employee training and facilities
1 Amount of the expenditure incurred on employee training and facilities.
S61 & CL61,PT I, Second schedule
Charitable donation
1 Party-wise details of donations made during the year.
S70
Recouped expenditure
1 Amount and nature of any loss or expenditure which has been allowed as a deduction in prior years and which has been recouped in the current year.
S34(5) Unpaid liability 1 Details of liabilities which have remained unpaid over three years or subsequent payment made out of such liabilities which had been taxed previously and deduction allowable on payment.
S106 Thin Capitalization
1 In case of foreign-controlled resident company, foreign debt-to-foreign equity ratio in excess of three to one at any time during a tax year, disallowed for the profit on debt paid by the company in that year on that part of the debt.
S150, 151, 152, 153, 155, 156, 156A, 156B, 233, 233A, 234, 234A, 235 & 236
Deduction of taxes at source / Taxes withheld at source
1 Amount of taxes deducted at source, under relevant heads, whether being final or not.
Taxation
S147 Advance tax 1 Details of the quarterly advance tax paid by the company during the year.
S148
Imports
1 Tax paid at source during the year on the assessed value of such commercial imports.
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S154 Exports 1 Amount of tax paid as final tax in respect of export proceeds realised during the year, whether tax liability on Final Tax Regime is charged on accrual basis or actual tax deduction or collection basis.
If accrual basis is followed then reconciliation is required for the purposes of identification of tax deducted during the year out of sales recorded last year and tax deducted on them during the year. Relevant exercise is also be made for determining over or under tax charge
2 Amount of export proceeds realised during the year.
Allocation of common expenditure
S67
Apportionment of deductions
1 Amount and description of expenses that is allocatable on the basis of gross receipts for the particular classes of income to which they are allocatable.
2 Amount and description of expenses that is specifically allocatable to particular classes of income only, along with the rationale for such apportionment.
3 Clearly identified classes of income, being segmented into income taxable under NTR and PTR, being further segmented into different heads of income under NTR and PTR.
Tax losses
S56, 56A & 57A
Set off of tax losses
1 Amount and description of tax losses under each respective head of income set off against the taxable income under another head of income as per the requirements of the Income Tax Ordinance, 2001.
S57, 58 & 59
Carry forward of tax losses
1 Amount and description of tax losses under each respective head of income, that were not wholly set off, carried forward as per the requirements of the Income Tax Ordinance,
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2001.
S59AA
Group taxation
1 Statement to the effect whether the option to be taxed as a single fiscal unit has been exercised, if applicable.
S59B
Group relief
1 Amount of any assessed losses surrendered by the company to its holding company, subsidiary company, or another subsidiary of the holding company along with a statement to the effect that the requirements of the Income Tax Ordinance, 2001 have been satisfied in this regard.
Any other items (from the profit and loss account)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
Different treatment in prior years
1 Amount, nature and description of any items, pertaining to the current year, which have been treated in a different manner in the returns filed in prior years or orders pertaining to assessments finalised in prior years.
2 A statement to the effect that the above items have been accordingly treated in the current year along with reasons in case of not doing so.
3 Detail of items treated as capital receipts, etc considered as not chargeable to tax.
Confirmation whether all the items covered above have been correctly reflected in the tax return.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
BALANCE SHEET
Income Tax Ordinance,
2001; section reference
Description Information subject to audit
Property, plant and equipment & Intangibles
S22, 23, 23A, R12 & S24
Depreciation and initial allowance, amortization of intangibles
1 Tax depreciation and amortization schedule for the year, prepared in accordance with the requirements of the Income Tax Ordinance, 2001 (refer the attachment)
2 First year allowance schedule for the year in accordance with the requirements of the Income Tax Ordinance, 2001.
3 Asset-wise accounting gain / (loss) on disposal of depreciable assets and intangibles.
4 Asset-wise tax gain / (loss) on disposal of depreciable assets and intangibles in accordance with the requirements of the Income Tax Ordinance, 2001.
5 Asset wise sale proceeds on disposal of operating assets and intangibles.
6 Comparison of carrying amounts of property, plant and equipment, and intangibles, as per the financial statements and tax depreciation / amortization schedule, specifically identifying differences in additions, if any.
7 Statement by the client as to the fair market value of the depreciable assets and intangibles disposed off.
8 List of depreciable assets and intangibles that are seized to be used in the business, if any.
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9 Fair market value of the depreciable assets and intangibles that are seized to be used in business, if any.
10 If the company has acquired intangibles during the year (the company is entitled to amortize and claim deduction in respect of the cost of intangibles having normal useful life exceeding one year)
Investments
S37 Capital gains 1 Detailed schedule of long term investments indicating cost and dates of acquisition.
2 Accounting gain / (loss) on disposal of long term investments.
3 Tax gain / (loss) on disposal of long term investments.
4 Consideration received for disposal of long term investments.
S108 Loans Between Associates
Transactions to be seen for knowing these are not back date entries and are routed through banking channels.
Deposits, Prepayments and Other receivables
S25
Pre-commencement expenditure
1 Details of the pre-commencement expenditure incurred along with relevant supporting documentation.
S35 Stores and spares & stock in trade
1 The opening value of stock-in-trade as at the opening balance sheet date.
2 The cost of stock-in-trade acquired during the year.
3 The closing value of the stock-in-trade as at the closing balance sheet date.
4 Break-up of opening and closing values of stock in trade into manufactured goods and commercial imports.
5 Net realisable values of items appearing in the
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opening and closing stock-in-trade listings.
6 The amount of stock provided for during the current year.
7 The amount of stock provision utilised (write-off or reversal) during the year.
8 Extent of physical verification of closing stock in trade, if performed; otherwise a statement explaining the reasons for non performance of physical verification along with the explanation regarding how the closing balance of stock in trade has been verified.
9 Reconciliation of stock in trade consumed / sold prepared in the following format:
10 Item wise list of stock in trade that is no longer to be used by the business, If any.
11 Fair market value of such stock in trade that is no longer to be used in the business, if any.
S29 Bad debts 1 Detailed party-wise breakup of bad debts written off during the year.
2 Detailed party-wise breakup of reversal of bad debts previously written off during the year.
3 Details of any legal actions taken by the client to recover the debt, if any.
Other receivables
1 Nature, amount and description of significant items appearing in the other receivables balance.
Tax refunds due from the Government
1 Reconciliation of sales tax and FED as per the return with amounts as per general ledger account codes.
Reserves 1 Details of amount transferred to the participatory reserve created as per the relevant law.
2 Value of the company's participatory redeemable capital.
3 Details of amount applied by the company
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from the said reserve.
Liabilities against assets subject to finance leases
S28
Profit on debt, financial costs and lease payments
1 Schedule of lease rentals paid by the company to the specified persons during the year.
2 Amount charged as finance costs pertaining to lease rentals during the year.
Retirement benefits obligation
Please refer the administrative, distribution and other operating expenses area.
S34(5), 34(5A) & 34(6)
Liability unpaid for more than 3 years
1 Ageing of trading liabilities and accruals indicating the decommissioning cost (along with unwinding of discount) claimed as deduction in current or prior years.
2 Details regarding subsequent payment of liability offered for tax as a result of operation of S34(5) of the Income Tax Ordinance, 2001.
Provisions 1 Break-up of closing balance of provisions indicating the ageing and nature of amounts.
2 Schedule of amounts provided for during the year.
3 Schedule of provisions utilised during the year.
Accrued interest / mark up
S28
Profit on debt, financial costs and lease payments
1 Schedule of profit on debt, the proceeds of which have been utilised by the company for the purpose of the company's business.
2 Amount and description of other transactions referred to in S28 of the Income Tax Ordinance, 2001.
Any other items (from the balance sheet)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
TRENDS, RATIOS AND ANALYSIS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
1. Variance and ratio analysis of the gross profit for three years along with the reasons for variations.
2 Variance and ratio analysis of the net profit for three years along with the reasons for variations.
3 Stock in trade turnover ratios for three years (only applicable to companies engaged in manufacturing and trading).
4 Raw materials consumed as a percentage of cost of goods manufactured, for three years (only applicable to companies engaged in manufacturing).
5 Industry-wise ratio analysis with comments for significant variations.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
RELATED PARTY TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27
Transactions with related parties
1. Party-wise break-up of related party transactions indicating the nature of relationship, the nature and amount of the transaction and the trade terms governing such transaction.
2 Nature of related party transaction viz. sales, purchase, allocation of expenses, technical fee, franchise and royalty fee etc. Whether tax on payments to non residents has been deducted, if not underlying justification for the same.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
NON-RECURRING TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Non-recurring transaction
1. Nature, amount and description of material non-recurring transactions carried out during the year.
Definition of non-recurring transaction
A transaction is considered non-recurring which, either by virtue of number of occurrences (e.g. one-off) or amount, is exceptional in nature.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – MANUFACTURING COMPANIES
RECONCILIATION WITH THE TAX RETURN FILED
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Reconciliation between statement of additional information and tax return filed
1. Nature, amount and description of any differences between the additional information and the tax return filed, along with the explanations and reasons thereof
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QuantityFinished
goods Raw and packing
materials
Stores and
spares
Opening balance
Purchases / Manufactured
Less: Closing balance
Sold / Consumed
Sold / Consumed as
per the financial
statements
Difference
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Annexure “F”
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
TABLE OF CONTENTS
Serial Number Name of the attachment containing the additional information
1. General Information
2. Accounting Policies and Methodology
3. Profit and Loss Account
4. Balance Sheet
5. Trends, Ratios and Analysis
6. Related Party Transactions
7. Non-recurring Transactions
8. Reconciliation with the Tax Return Filed
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
GENERAL INFORMATION
Income Tax Ordinance 2001; section reference
Description Information subject to audit
Name of the company
Registered address
National tax number
Status
Tax year
Nature of business
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
ACCOUNTING POLICIES AND METHODOLOGY
Income Tax Ordinance 2001; section reference
Description Information subject to audit
S32, 33, 34, 35 & R32
Method of accounting
1. The company's policy statement pertaining to the method of accounting followed by the company, whether it is accrual based accounting or cash based accounting.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
PROFIT AND LOSS ACCOUNT
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Sales 1. Reconciliation of sales/Services revenue as per invoice reports to sales as per the general ledger and financial statements.
2 Reconciliation of sales as per sales tax returns in case of services chargeable to sales tax and as per the general ledger.
3 Reconciliation of sales as per sales tax returns and as per the income tax return.
Deductions from sales
1 Details regarding the nature and amounts of major components of deductions from sales, including discounts. Confirm whether such deduction and discounts form part of the sales invoice.
Cost of Service 1 Break up of operating cost
2 Reconciliation of operating cost as per invoice reports with the general ledger and accruals.
Income from long term contracts
S36 Long term contracts
1 Copy of the particular long term contract.
2 Details of total cost allocated to the contract and incurred before the end of the tax year.
3 Total estimated cost at the beginning of the contract.
Administrative, distribution and other operating expenses
S21 Deductions not 1 Amount of any tax, cess or rate paid or payable in
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allowed
Pakistan or any foreign country, the said tax, cess or rate being levied on profits or on the basis of profits.
2 Amount and break-up of taxes deducted at source.
3 Amount of any payments made by the company on which either tax has not been deducted or deposited at source.
R10
4 Amount of entertainment (and advertisement expenses) incurred during the year in contravention of the requirements of the Income Tax Ordinance, 2001.
5 Amount of any amounts contributed to unrecognised provident funds, unapproved superannuation funds and unapproved gratuity funds.
6 Amount of contributions made to any fund established for the benefit of employees of the company in respect of which tax is not deducted under section 149 of the Income Tax Ordinance, 2001 on any payments made by the fund against which the recipient of the payment is chargeable under the head 'salary'.
7 Details of stock option, whether scheme is exclusive and company specific or based on group having multinational source. Details and amounts charged or taken through group charge back mechanism. Whether tax is considered as deductible on exercise of option or shares, etc and reported in periodical statements.
8 Amount of any fines or penalties paid or payable by the company for violation of any law, rule or regulation.
9 Amount of any expenditure incurred for the purposes other than in connection with business.
10 Amount of appropriations or amounts carried to a reserve fund or capitalised in any way.
11 Amount and description of expenditure under a single account head which in aggregate exceeds Rs. 50,000 made other than by a crossed cheque or cross banking instrument
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12 Amount and description of payments in violation of the requirement of banking channels for amounts exceeding Rs. 15,000.
13 Amount and description of expenditures of a capital nature other than that for which deductions are specifically allowed under the Income Tax Ordinance, 2001.
14 Amount of salaries, wages and other benefits paid to the employees of the company in contravention of the requirements of the Income Tax Ordinance, 2001.
S26 Scientific research expenditure
1 Amount of the scientific expenditure incurred during the year.
S27 Employee training and facilities
1 Amount of the expenditure incurred on employee training and facilities.
S61 & R CL61,PT I, Second schedule
Charitable donation
1 Party-wise details of donations made during the year.
S70
Recouped expenditure
1 Amount and nature of any loss or expenditure which has been allowed as a deduction in prior years and which has been recouped in the current year.
S34(5) Unpaid liability 1 Details of liabilities which have remained unpaid over three years or subsequent payment made out of such liabilities which had been taxed previously and deduction allowable on payment.
S150, 151, 152, 153, 155, 156, 156A, 156B, 233, 233A, 234, 234A, 235 & 236
Deduction of taxes at source / Taxes withheld at source
1 Amount of taxes deducted at source, under relevant heads, whether being final or not.
Taxation
S147
Advance tax 1 Details of the quarterly advance tax paid by the company during the year.
Allocation of common expenditure
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S67
Apportionment of deductions
1 Amount and description of expenses that is allocatable on the basis of gross receipts for the particular classes of income to which they are allocatable.
2 Amount and description of expenses that is specifically allocatable to particular classes of income only along with the rationale for such apportionment.
3 Clearly identified classes of income, being segmented into income taxable under NTR and PTR, being further segmented into different heads of income under NTR and PTR.
Tax losses
S56, 56A & 57A
Set off of losses
1 Amount and description of tax losses under each respective head of income set off against the taxable income under another head of income as per the requirements of the Income Tax Ordinance, 2001.
S57, 58 & 59
Carry forward of losses
1 Amount and description of tax losses under each respective head of income, that were not wholly set off, carried forward as per the requirements of the Income Tax Ordinance, 2001.
S59AA
Group taxation
1 Statement to the effect whether the option to be taxed as a single fiscal unit has been exercised, if applicable.
S59B
Group relief
1 Amount of any assessed losses surrendered by the company to its holding company, subsidiary company, or another subsidiary of the holding company along with a statement to the effect that the requirements of the Income Tax Ordinance, 2001 have been satisfied in this regard.
Any other items (from the profit and loss account)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
Different treatment in prior years
1 Amount, nature and description of any items, pertaining to the current year, which have been treated in a different manner in the returns filed in prior years or orders pertaining to assessments finalised in prior years.
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2 A statement to the effect that the above items have been accordingly treated in the current year along with reasons in case of not doing so.
Confirmation whether the above items have been correctly reflected in the tax return.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
BALANCE SHEET
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Property, plant and equipment & Intangibles
S22, 23, 23A, R12 & S24
Depreciation and initial allowance, amortization of intangibles
1 Tax depreciation and amortization schedule for the year, prepared in accordance with the requirements of the Income Tax Ordinance, 2001.
2 First year allowance schedule for the year in accordance with the requirements of the Income Tax Ordinance, 2001.
3 Asset wise accounting gain / (loss) on disposal of depreciable assets and intangibles.
4 Asset-wise tax gain / (loss) on disposal of depreciable assets and intangibles in accordance with the requirements of the Income Tax Ordinance, 2001.
5 Asset wise sale proceeds on disposal of operating assets and intangibles.
6 Comparison of carrying amounts property, plant and equipment, and intangibles, as per the financial statements and tax depreciation / amortization schedule, specifically identifying differences in additions, if any.
7 Statement by the client as to the fair market value of the depreciable assets and intangibles disposed off.
8 List of depreciable assets and intangibles that are seized to be used in the business, if any.
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9 Fair market value of the depreciable assets and intangibles that are seized to be used in business, if any.
Investments
S37 Capital gains 1 Detailed schedule of long term investments indicating cost and dates of acquisition.
2 Accounting gain / (loss) on disposal of long term investments.
3 Tax gain / (loss) on disposal of long term investments.
4 Consideration received for disposal of long term investments.
General information
1 Provide details regarding loans given to employees and the basis of mark-up charged thereon.
Deposits, Prepayments and Other receivables
S25
Pre-commencement expenditure
1 Details of the pre-commencement expenditure incurred along with relevant supporting documentation.
Other receivables
1 Nature, amount and description of significant items appearing in the other receivables balance.
S29 Bad debts 1 Detailed party-wise breakup of bad debts written off during the year.
2
Detailed party-wise breakup of reversal of bad debts previously written off during the year.
3 Details of any legal actions taken by the client to recover the debt, if any.
Tax refunds due from the Government
1 Reconciliation of sales tax and FED as per the return with amounts as per general ledger account codes.
Reserves 1 Details of amount transferred to the participatory reserve created as per the
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relevant law.
2 Value of the company's participatory redeemable capital.
3 Details of amount applied by the company from the said reserve.
Liabilities against assets subject to finance leases
S28
Profit on debt, financial costs and lease payments
1 Schedule of lease rentals paid by the company to the specified persons during the year.
2 Amount charged as finance costs pertaining to lease rentals during the year.
Retirement benefits obligation
Please refer the administrative, distribution and other operating expenses area.
Provisions & other Liabilities
S34(5), 34(5A) & 34(6)
Liability unpaid for more than 3 years
1 Ageing of trading liabilities and accruals indicating the decommissioning cost (along with unwinding of discount) claimed as deduction in current or prior years.
2 Details regarding subsequent payment of liability offered for tax as a result of operation of S34(5) of the Income Tax Ordinance, 2001.
Provisions 1 Break-up of closing balance of provisions indicating the ageing and nature of amounts.
2 Schedule of amounts provided for during the year.
3 Schedule of provisions utilised during the year.
Accrued interest / mark up
S28
Profit on debt, financial costs and
1 Schedule of profit on debt, the proceeds of which have been utilised by the company for
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lease payments the purpose of the company's business.
2 Amount and description of other transactions referred to in S28 of the Income Tax Ordinance, 2001.
Any other items (from the balance sheet)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
Confirmation whether all the items covered above have been correctly reflected in the tax return.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
TRENDS, RATIOS AND ANALYSIS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
1. Variance and ratio analysis of the gross profit for three years along with the reasons for variations.
2 Variance and ratio analysis of the net profit for three years along with the reasons for variations.
Tax Audit Framework
72
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
RELATED PARTY TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27
Transactions with related parties
1. Party-wise break-up of related party transactions indicating the nature of relationship, the nature and amount of the transaction and the trade terms governing such transaction.
2 Nature of related party transaction viz. sales, purchase, allocation of expenses, technical fee, franchise or royalty fee etc. Whether tax to non residents has been deducted on technical fee
Tax Audit Framework
73
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
NON-RECURRING TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Non-recurring transaction
1. Nature, amount and description of material non-recurring transactions carried out during the year.
Definition of non-recurring transaction
A transaction is considered non-recurring which, either by virtue of number of occurrences (e.g. one-off) or amount, is exceptional in nature.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – SERVICE SECTOR
RECONCILIATION WITH THE TAX RETURN FILED
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Reconciliation between statement of additional information and tax return filed
1. Nature, amount and description of any differences between the additional information and the tax return filed, along with the explanations and reasons thereof
Tax Audit Framework
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Annexure “G”
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
TABLE OF CONTENTS
Serial Number Name of the attachment containing the additional information
1. General Information
2. Accounting Policies and Methodology
3. Profit and Loss Account
4. Balance Sheet
5. Trends, Ratios and Analysis
6. Related Party Transactions
7. Non-recurring Transactions
8. Reconciliation with the Tax Return Filed
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
GENERAL INFORMATION
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Name of the bank
Registered address
National tax number
Status
Tax year
Nature of business
Principal Nature of business
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
ACCOUNTING POLICIES AND METHODOLOGY
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S32, 33, 34, 35 & R32
Method of accounting
1. The bank’s policy statement pertaining to the method of accounting followed by the company, whether it is accrual based accounting or cash based accounting.
2 The bank's policy statement pertaining to the method of recognition of mark-up income / expense on Sale and repurchase agreements.
3 The bank's policy statement pertaining to the method of recognition of Translation gains and losses.
4 The bank's policy statement pertaining to the method of recognition of mark-up / interest on advances and returns on investments.
5 The bank's policy statement pertaining to the method of recognition of others such as gains / losses on termination of lease contracts, premium on foreign currency options, commission income, dividend income etc.
6 The bank's policy statement pertaining to the method of recognition change in the fair value of derivative financial instruments.
7 Shariah compliant accounting treatment which needs adjustment to harmonize the tax with normal accounting as envisaged in the Seventh Schedule
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
PROFIT AND LOSS ACCOUNT
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Revenue 1. Details of mark-up/return/interest/ earned as per the financial statements.
2.
In case of non resident banks
Details of payments received from Head Office or other branches of the Head Office on account of any royalty, fee, and compensation for any services rendered to them by the Pakistan Branch or any interest received on funds lent except in connection with normal banking business.
Cost of Fund
1 Details regarding the nature and amounts of major components of mark-up/return/interest expense incurred by the bank.
Administrative, distribution and other operating expenses
S21
Deductions not allowed
1 Amount of any tax, cess or rate paid or payable in Pakistan or any foreign country, the said tax, cess or rate being levied on profits or on the basis of profits.
2 Amount and break-up of taxes deducted at source.
3 Amount of any payments made by the company on which either tax has not been deducted or deposited at source.
4 Amount of entertainment incurred during the year in contravention of the requirements of the Income Tax Ordinance, 2001.
5 Amount of any amounts contributed to unrecognised provident funds, unapproved
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superannuation funds and unapproved gratuity funds.
6 Amount of contributions made to any fund established for the benefit of employees of the company in respect of which tax is not deducted under section 149 of the Income Tax Ordinance, 2001 on any payments made by the fund against which the recipient of the payment is chargeable under the head 'salary'.
7 Details of stock option, whether scheme is exclusive and company specific or based on group having multinational source. Details and amounts charged or taken through group charge back mechanism. Whether tax is considered as deductible on exercise of option or shares, etc and reported in periodical statements.
8 Amount of penal interest paid to the State Bank of Pakistan or any fines or penalties paid or payable by the company for violation of any law, rule or regulation.
9 Amount of any expenditure incurred for purposes other than in connection with business.
10 Amount of appropriations or amounts carried to a reserve fund or capitalised in any way.
11 Amount and description of expenditure under a single account head which in aggregate exceeds Rs. 50,000 made other than by a crossed cheque or cross banking instrument
12 Amount and description of payments in violation of the requirement of banking channels for amounts exceeding Rs. 15,000.
13 Amount and description of expenditures of a capital nature other than that for which deductions are specifically allowed under the Income Tax Ordinance, 2001.
14 Amount of salaries, wages and other benefits paid to the employees of the company in contravention of the requirements of the Income
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Tax Ordinance, 2001.
15 Details of specific payments to non-resident and evidence of deduction of tax
16 Confirmation whether the above items have been correctly reflected in the tax return.
S27 Employee training and facilities
1 Amount of the expenditure incurred on employee training and facilities.
S61 & CL61,PT I, Second schedule
Charitable donations
1 Party-wise details of donations made during the year.
S70
Recouped expenditure
1 Amount and nature of any loss or expenditure which has been allowed as a deduction in prior years and which has been recouped in the current year.
In case of Non resident banks
1 Details of payments to Head Office or other branches of the Head Office on account of royalty, fee, and compensation for any services rendered by them to the Pakistan Branch or any interest paid on funds borrowed except in connection with normal banking business.
SBP Circular 326 2 Certificate from the State Bank of Pakistan regarding admissibility of interest paid, if any, on foreign currency deposits received from the head office or other branches under the Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan vide Exchange Control Department's Circular No.18/ECP.16 (326)/85 dated September 3, 1985.
S34(5) Unpaid liability 1 Details of liabilities which have remained unpaid over three years or subsequent payment made out of such liabilities which had been taxed previously and deduction allowable on payment.
S150, 151, 152, 153, 155, 156, 156A, 156B, 233, 233A, 234, 234A, 235 & 236
Deduction of taxes at source / Taxes withheld at source
1 Amount of taxes deducted at source, under relevant heads, whether being final or not.
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Taxation
S147
Advance tax
1 Details of the quarterly advance tax paid by the company during the year.
103
Foreign Tax Credit
1 In case of banks having branches outside Pakistan, Foreign Tax Credit, the bank is entitled to foreign tax credit in respect of foreign income tax paid outside Pakistan.
S150
Withholding tax on dividend
1 Amount of tax withheld on payment of dividend to the members / Shareholders.
Allocation of common expenditure
1 Amount of specific expenses incurred abroad for Pakistan branches which are to be claimed as a deduction for tax purposes duly supported by a certificate of your head office auditors.
2 Amount of allocated head office expenses (i.e. executive or general administration expenses), to be claimed for tax purposes duly supported by a certificate of your head office auditors.
Tax losses
S56, 56A & 57A
Set off of losses
1 Amount and description of tax losses under each respective head of income set off against the taxable income under another head of income as per the requirements of the Income Tax Ordinance, 2001.
S57, 58 & 59
Carry forward of losses
1 Amount and description of tax losses under each respective head of income, that were not wholly set off carried forward as per the requirements of the Income Tax Ordinance, 2001.
S59B
Group relief
1 Amount of any assessed losses surrendered by the subsidiary company to its holding company, subsidiary company, or another subsidiary of the holding company along with a statement to the effect that the requirements of the Income Tax Ordinance, 2001 have been satisfied in this
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regard.
S29 Bad debts 1 Detailed party-wise breakup of bad debts written off during the year.
2 Detailed party-wise breakup of reversal of bad debts previously written off during the year.
3 Details of any legal actions taken by the client to recover the debt, if any.
4 Party-wise details of bad debts disallowed in earlier years which are now mature to be reclaimed. Details of efforts made for recovery of each debt which leads to re-establishment of the claim for allowance during the current year
5 Party wise details of bad debts recovered during the year which have been taxed in earlier years showing the assessment year / tax year in which such bad debt was originally claimed and disallowed
Loans
S29A
Provision regarding consumer loans
1 Details of income arising out of consumer loans.
2 Details of any bad debts arising out of such consumer loans which have not been wholly set off against the reserve allowed to be created under S29A of the Income Tax Ordinance, 2001.
3 Details of any reversals in respect of such consumer loans.
S30
Profit on non-performing debts of a banking company or a DFI
1 Details of profit accruing on such debts.
2 Details of the suspense account to which such profit is credited as per the Prudential Regulations issued by SBP.
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3 Details of any subsequent recovery of profit on such debts.
4 Details of any reversals in respect of such provisions.
General information
1 Provide details regarding loans given to employees and the basis of mark-up charged thereon.
2 Confirmation whether all the items covered above have been correctly reflected in the tax return.
Any other items (from the profit and loss account)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
Different treatment in prior years
1 Amount, nature and description of any items, pertaining to the current year, which have been treated in a different manner in the returns filed in prior years or orders pertaining to assessments finalised in prior years.
2 A statement to the effect that the above items have been accordingly treated in the current year along with reasons in case of not doing so.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
BALANCE SHEET
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Property, plant and equipment & Intangibles
S22, 23, 23A, R12 & S24
Depreciation and initial allowance, amortization of intangibles
1 Tax depreciation and amortization schedule for the year, prepared in accordance with the requirements of the Income Tax Ordinance, 2001 (refer the attachment).
2 Initial allowance schedule for the year in accordance with the requirements of the Income Tax Ordinance, 2001.
3 Asset wise accounting gain / (loss) on disposal of depreciable assets and intangibles.
4 Asset wise tax gain / (loss) on disposal of depreciable assets and intangibles in accordance with the requirements of the Income Tax Ordinance, 2001.
5 Asset wise sale proceeds on disposal of operating assets and intangibles.
6 Comparison of carrying amounts property, plant and equipment, and intangibles, as per the financial statements and tax depreciation / amortization schedule, specifically identifying differences in additions, if any.
7 Statement by the client as to the fair market value of the depreciable assets and intangibles disposed off.
8 List of depreciable assets and intangibles that are seized to be used in the business, if any.
9 Fair market value of the depreciable assets and intangibles that are seized to be used in
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business, if any.
10 If the bank has acquired intangibles during the year (the bank is entitled to amortize and claim deduction in respect of the cost of intangibles having normal useful life exceeding one year)
11 Amount of claim of depreciation in respect of fixed assets used by the Pakistan branches and the cost of which is recorded in head office books.
Investments
S37 Capital gains 1 Detailed schedule of long term investments indicating cost and dates of acquisition, with the segregation of amount related to current year and disposal of investments over one year.
2 Accounting gain / (loss) on disposal of long term investments.
3 Tax gain / (loss) on disposal of long term investments.
4 Consideration received for disposal of long term investments.
Deposits, Prepayments and Other receivables
S25
Pre-commencement expenditure
1 Details of the pre-commencement expenditure incurred along with relevant supporting documentation.
Other receivables
1 Nature, amount and description of significant items appearing in the other receivables balance.
Liabilities against assets subject to finance leases
S28 Profit on debt, financial costs and lease payments
1 Schedule of lease rentals paid by the company to the specified persons during the year.
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2 Amount charged as finance costs pertaining to lease rentals during the year.
Retirement benefits obligation
Please refer the administrative, distribution and other operating expenses area.
Other payables & Provisions
S34(5), 34(5A) & 34(6)
Liability unpaid for more than 3 years
1 Aging of trading liabilities and accruals.
2 Details regarding subsequent payment of liability offered for tax as a result of operation of S34(5) of the Income Tax Ordinance, 2001.
Provisions 1 Break-up of closing balance of provisions indicating the ageing and nature of amounts.
2 Schedule of amounts provided for during the year.
3 Schedule of provisions utilised during the year.
Any other items (from the balance sheet)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
TRENDS, RATIOS AND ANALYSIS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
1 Variance and ratio analysis of the gross profit for three years along with the reasons for variations.
2 Variance and ratio analysis of the net profit for three years along with the reasons for variations.
Tax Audit Framework
88
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
RELATED PARTY TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27
Transactions with related parties
1 Party-wise break-up of related party transactions indicating the nature of relationship, the nature and amount of the transaction and the trade terms governing such transaction.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
NON-RECURRING TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27
Non-recurring transactions
1 Nature, amount and description of material non-recurring transactions carried out during the year.
Definition of non-recurring transaction
A transaction is considered non-recurring which, either by virtue of number of occurrences (e.g. one-off) or amount, is exceptional in nature.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES – BANKS
RECONCILIATION WITH THE TAX RETURN FILED
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27
Reconciliation between statement of additional information and tax return filed
1 Nature, amount and description of any differences between the additional information and the tax return filed, along with the explanations and reasons thereof.
Tax Audit Framework
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Annexure “H”
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES - OIL EXPLORATION COMPANIES
TABLE OF CONTENTS
Serial Number Name of the attachment containing the additional information
1. General Information
2. Accounting Policies and Methodology
3. Profit and Loss Account
4. Balance Sheet
5. Trends, Ratios and Analysis
6. Related Party Transactions
7. Non-recurring Transactions
8. Reconciliation with the Tax Return Filed
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
GENERAL INFORMATION
Income Tax Ordinance 2001; section reference
Description Information subject to audit
Name of the company
Registered address
National tax number
Status
Tax year
Nature of business
Details of 'Petroleum Concession Agreements' (PCA) and 'Production Sharing Agreements' (PSA) indicating the following:
- name of PCA / PSA
- effective date of PCA / PSA
- tax clause including the exact wording.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
ACCOUNTING POLICIES AND METHODOLOGY
Income Tax Ordinance 2001; section reference
Description Information subject to audit
S32, 33, 34, 35 & R32
Method of accounting
1. The company's policy statement pertaining to the method of accounting followed by the company, whether it is accrual based accounting or cash based accounting.
2
The company's policy statement pertaining to the method of computation of the cost of stock-in-trade, whether it is computed on the basis of absorption-cost method or prime-cost method.
3 The company's policy statement pertaining to the cost formula used to compute the value of stock, whether it is the FIFO method or the average-cost method.
4 The company's policy in respect of pre-commercial discovery exploration expenditure.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
PROFIT AND LOSS ACCOUNT
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Sales
1. Reconciliation of sales as per invoice reports to sales as per the general ledger and financial statements.
2 Reconciliation of sales as per sales tax returns and as per the general ledger.
3 Reconciliation of sales as per sales tax returns and as per the income tax return.
Deductions from sales
1 Details regarding the nature and amounts of major components of deductions from sales, including discounts. Confirm whether such deduction and discounts form part of the sales invoice.
Purchases
1 Reconciliation of purchases of store and spares & stock in trade as per invoice reports to purchases as per the purchase ledger and accruals.
2 Reconciliation of purchase as per sales tax returns and as per the general ledger.
3 Break-up of purchases, if any.
Cost of goods sold
1 Cost of goods sold.
2 Quantitative analysis of goods manufactured to ascertain goods sold along with reconciliation of the same with quantities of goods sold as per reports along with reasons for any significant variation.
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3 Analysis of production loss for three years along with reasons for variation.
4 Concession wise details of revenues, expenditure incurred, depletion allowance, loss adjustment, tax payable, adjustment of royalty, etc.
5 Details of expenditure incurred on current Petroleum Concessions and details of pertinent accounting treatment adopted for them.
6 Details of absorptive expenditure and treatment adopted. Whether the treatment conforms to the stipulations made Fifth Schedule read with respective Concession Agreement.
7 Basis adopted for calculation of depletion allowance, whether the terms agreed with the Ministry of Petroleum GOP
8 Basis of claim royalty payment in case of loss and where tax is payable.
9 Basis followed for adjustment of losses in different concession and whether such losses are adjusted based on basis agreed in respective concessions.
Administrative, distribution and other operating expenses
S21
Deductions not allowed
1 Amount of any tax, cess or rate paid or payable in Pakistan or any foreign country, the said tax, cess or rate being levied on profits or on the basis of profits.
2 Amount and break-up of taxes deducted at source.
3 Amount of any payments made by the company on which either tax has not been deducted or deposited at source.
4 Amount of any amounts contributed to unrecognised provident funds, unapproved
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superannuation funds and unapproved gratuity funds.
5 Amount of contributions made to any fund established for the benefit of employees of the company in respect of which tax is not deducted under section 149 of the Income Tax Ordinance, 2001 on any payments made by the fund against which the recipient of the payment is chargeable under the head 'salary'.
7 Details of stock option, whether scheme is exclusive and company specific or based on group having multinational source. Details and amounts charged or taken through group charge back mechanism. Whether tax is considered as deductible on exercise of option or shares, etc and reported in periodical statements.
8 Amount of any fines or penalties paid or payable by the company for violation of any law, rule or regulation.
9 Amount of any expenditure incurred for purposes other than in connection with business.
10 Amount of appropriations or amounts carried to a reserve fund or capitalized in any way.
11 Amount and description of expenditure under a single account head which in aggregate exceeds Rs. 50,000 made other than by a crossed cheque or cross banking instrument
12 Amount and description of payments in violation of the requirement of banking channels for amounts exceeding Rs. 15,000.
13 Amount and description of expenditures of a capital nature other than that for which deductions are specifically allowed under the Income Tax Ordinance, 2001.
14 Amount of salaries, wages and other benefits paid to the employees of the company in contravention of the requirements of the
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Income Tax Ordinance, 2001.
15 Confirmation whether the above items have been correctly reflected in the tax return.
S26 Scientific research expenditure
1 Amount of the scientific expenditure incurred during the year.
S27 Employee training and facilities
1 Amount of the expenditure incurred on employee training and facilities.
S61 & CL61,PT I, Second schedule
Charitable donations
1 Party-wise details of donations made during the year including the donations made under the Concession Agreements.
S70
Recouped expenditure
1 Amount and nature of any loss or expenditure which has been allowed as a deduction in prior years and which has been recouped in the current year.
Rule 2(4)
Pre-commercial discovery expenditure
1 PCA / PSA wise details of expenditure incurred prior to commencement of commercial production.
2 Details of fixed assets acquired prior to commencement of commercial production on which depreciation is allowed after commencement of commercial production, on the original cost.
Rule 3
Well head value 1 Amount of 'well head value' (WHV) used for the purpose of calculating depletion allowance. If WHV is an amount other than sales, provide a reconciliation indicating the deductions or additions to sales for calculating WHV.
2 Amount of WHV used for payment of royalty to the Government. Reconciliation between sales and WHV as stated above is also to be provided.
S150, 151, 152, 153, 155, 156, 156A, 156B, 233, 233A, 234, 234A, 235 & 236
Deduction of taxes at source / Taxes withheld at source
1 Amount of taxes deducted at source, under relevant heads, whether being final or not.
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Taxation
S147
Advance tax
1 Details of the quarterly advance tax paid by the company during the year.
S148
Imports 1 Tax paid at source during the year on the assessed value of imports.
Allocation of common expenditure
S67
Apportionment of deductions
1 Amount and description of expenses that is allocatable on the basis of gross receipts for the particular classes of income to which they are allocatable.
2 Amount and description of expenses that is specifically allocatable to particular classes of income only, along with the rationale for such apportionment.
3 Clearly identified classes of income, being segmented into income taxable under NTR and PTR, being further segmented into different heads of income under NTR and PTR.
Tax losses
S56, 56A & 57A and Rule 2(3)
Set off of losses
1 Whether Rule 2 (3)(a) or 2(3)(b) of Part 1 of the Fifth Schedule to the Income Tax Ordinance, 1979 or the Income Tax Ordinance, 2001 has been selected for claiming expenditure deemed to be lost under Rule 2(2). Indicate separately for each PCA and PSA.
2
If Rule 2(3)(b) has been selected, the amount and description of tax losses under each PCA / PSA along with similar details of PCA / PSA against whose income it has been adjusted
S57, 58 & 59
Carry forward of losses
1 Amount and description of tax losses under each respective head of income, that were not wholly set off, carried forward as per the requirements of the Income Tax Ordinance,
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2001.
S59AA
Group taxation
1 Statement to the effect whether the option to be taxed as a single fiscal unit has been excercised, if applicable.
S59B
Group relief
1 Amount of any assessed losses surrendered by the company to its holding company, subsidiary company, or another subsidiary of the holding company along with a statement to the effect that the requirements of the Income Tax Ordinance, 2001 have been satisfied in this regard.
Any other items (from the profit and loss account)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
Different treatment in prior years
1 Amount, nature and description of any items, pertaining to the current year, which have been treated in a different manner in the returns filed in prior years or orders pertaining to assessments finalised in prior years.
2 A statement to the effect that the above items have been accordingly treated in the current year along with reasons in case of not doing so.
Confirmation whether all the items covered above have been correctly reflected in the tax return.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
BALANCE SHEET
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Property, plant and equipment & Intangibles
S22, 23, 23A, R12 & S24
Depreciation and initial allowance, amortization of intangibles
1 Whether or not a separate clause for depreciation is available in the taxation article of each PCA / PSA.
2 Tax depreciation and amortization schedule for the year, prepared in accordance with the requirements of the Income Tax Ordinance, 2001 (refer the attachment).
3 First year allowance schedule for the year in accordance with the requirements of the Income Tax Ordinance, 2001.
4 Asset-wise accounting gain / (loss) on disposal of depreciable assets and intangibles.
5 Asset-wise tax gain / (loss) on disposal of depreciable assets and intangibles in accordance with the requirements of the Income Tax Ordinance, 2001.
6 Asset-wise sale proceeds on disposal of operating assets and intangibles.
7 Comparison of carrying amounts property, plant and equipment, and intangibles, as per the financial statements and tax depreciation / amortization schedule, specifically identifying differences in additions, if any.
8 Statement by the client as to the fair market value of the depreciable assets and
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intangibles disposed off.
9 List of depreciable assets and intangibles that are seized to be used in the business, if any.
10 Fair market value of the depreciable assets and intangibles that are seized to be used in business, if any.
11 If the company has acquired intangibles during the year (the company is entitled to amortize and claim deduction in respect of the cost of intangibles having normal useful life exceeding one year)
Investments
S37
Capital gains
1 Detailed schedule of long term investments indicating cost and dates of acquisition.
2 Accounting gain / (loss) on disposal of long term investments.
3 Tax gain / (loss) on disposal of long term investments.
4 Consideration received for disposal of long term investments.
S108 Loans Between Associates
Transactions to be seen for knowing these are not back date entries and are routed through banking channels.
Deposits, Prepayments and Other receivables
S25
Pre-commencement expenditure
1 Details of the pre-commencement expenditure incurred along with relevant supporting documentation.
Other receivables
2 Nature, amount and description of significant items appearing in the other receivables balance.
Stores and spares & stock in trade
S35 Stock in trade 1 The opening value of stock-in-trade as at the
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opening balance sheet date.
2 The cost of stock-in-trade acquired during the year.
3 The closing value of the stock-in-trade as at the closing balance sheet date.
4 Break-up of opening and closing values of stock in trade into manufactured goods and commercial imports.
5 Net realisable values of items appearing in the opening and closing stock-in-trade listings.
6. The amount of stock provided for during the current year.
7 Extent of physical verification of closing stock in trade, if performed; otherwise a statement explaining the reasons for non performance of physical verification along with the explanation regarding how the closing balance of stock in trade has been verified.
8 Reconciliation of stock in trade consumed / sold prepared in the following format:
Trade debts
S29 Bad debts 1 Detailed party-wise breakup of bad debts written off during the year.
2 Detailed party-wise breakup of reversal of bad debts previously written off during the year.
3 Details of any legal actions taken by the client to recover the debt, if any.
Other receivables
1 Nature, amount and description of significant items appearing in the other receivables balance.
Tax refunds due from the Government
1 Reconciliation of sales tax and FED as per the return with amounts as per general ledger account codes.
Reserves 1 Details of amount transferred to the participatory reserve created as per the
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relevant law.
2 Value of the company's participatory redeemable capital.
3 Details of amount applied by the company from the said reserve.
Liabilities against assets subject to finance leases
S28
Profit on debt, financial costs and lease payments
1 Schedule of lease rentals paid by the company to the specified persons during the year.
2 Amount charged as finance costs pertaining to lease rentals during the year.
Retirement benefits obligation
1 Please refer the administrative, distribution and other operating expenses area.
S34(5), 34(5A) & 34(6)
Liability unpaid for more than 3 years
1 Ageing of trading liabilities and accruals indicating the decommissioning cost (along with unwinding of discount) claimed as deduction in current or prior years.
2 Details regarding subsequent payment of liability offered for tax as a result of operation of S34(5) of the Income Tax Ordinance, 2001.
Provisions 1 Break-up of closing balance of provisions indicating the ageing and nature of amounts.
2 Schedule of amounts provided for during the year.
3 Schedule of provisions utilised during the year.
Accrued interest / mark up
S28
Profit on debt, financial costs and lease payments
1 Schedule of profit on debt, the proceeds of which have been utilised by the company for the purpose of the company's business.
2 Amount and description of other transactions
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referred to in S28 of the Income Tax Ordinance, 2001.
Any other items (from the balance sheet)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
TRENDS, RATIOS AND ANALYSIS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
1. Variance and ratio analysis of the gross profit for three years along with the reasons for variations.
2 Variance and ratio analysis of the net profit for three years along with the reasons for variations.
3 Stock in trade turnover ratios for three years (only applicable to companies engaged in manufacturing).
4 Raw materials consumed as a percentage of cost of goods manufactured, for three years (only applicable to companies engaged in manufacturing).
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
RELATED PARTY TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27
Transactions with related parties
1. Party-wise break-up of related party transactions indicating the nature of relationship, the nature and amount of the transaction and the trade terms governing such transaction.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
NON-RECURRING TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Non-recurring transactions
1. Nature, amount and description of material non-recurring transactions carried out during the year.
Definition of non-recurring transaction
A transaction is considered non-recurring which, either by virtue of number of occurrences (e.g. one-off) or amount, is exceptional in nature.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
RECONCILIATION WITH THE TAX RETURN FILED
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Reconciliation between statement of additional information and tax return filed
1. Nature, amount and description of any differences between the additional information and the tax return filed, along with the explanations and reasons thereof.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR INCOME TAX PURPOSES- OIL EXPLORATION COMPANIES
Quantity
Finished goods
Raw and packing
materials
Stores and
spares
Opening balance
Purchases / Manufactured
Less: Closing balance
Sold / Consumed
Sold / Consumed as
per the financial
statements
Difference
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Annexure “I”
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES- INSURANCE CO.
TABLE OF CONTENTS
Serial Number Name of the attachment containing the additional information
1. General Information
2. Accounting Policies and Methodology
3. Profit and Loss Account
4. Balance Sheet
5. Trends, Ratios and Analysis
6. Related Party Transactions
7. Non-recurring Transactions
8. Reconciliation with the Tax Return Filed
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES - INSURANCE CO.
GENERAL INFORMATION
Sales Tax Act 1990 / Federal Excise
Act 2005; section reference
Description Information subject to audit
Name of the company
Registered address
National tax number
Status
Tax year
Nature of business
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES - INSURANCE CO.
ACCOUNTING POLICIES AND METHODOLOGY
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S32, 33, 34, 35 & R32
Method of accounting
1. The company's policy statement pertaining to the method of accounting followed by the company, whether it is accrual based accounting or cash based accounting.
2 The company's policy statement pertaining to the method of recognition of income from premiums on insurance undertaken.
3 The company's policy statement pertaining to the method of recognition of claims lodged by policy holders and its recording in books of accounts.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES - INSURANCE CO.
PROFIT AND LOSS ACCOUNT
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Revenue
1. Details of premium/investment/other income earned as per the general ledger and financial statements.
Deductions
1 Details of premium paid on re insurance carried out with resident and non resident re insurers along with details of taxes withheld from such payments.
2 Details of claims paid during the year along with a reconciliation with claims received and outstanding claims as per balance sheet
3 Details of amounts allowable in terms of Rule 5(b) of the Fourth Schedule to the Income Tax Ordinance, 2001
Profit & Loss Expenses
S21
Deductions not allowed
1 Details of any tax, cess or rate paid or payable in Pakistan or any foreign country, the said tax, cess or rate being levied on profits or on the basis of profits.
2 Details and break-up of taxes deducted at source.
3 Details of any payments made by the company on which tax has not been paid or deducted and paid at source.
4 Details of contributions made to any fund established for the benefit of employees of the company in respect of which tax is not deducted under section 149 of the Income Tax Ordinance, 2001 on any payments made
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by the fund against which the recipient of the payment is chargeable under the head 'salary'.
5 Details of stock option, whether scheme is exclusive and company specific or based on group having multinational source. Details and amounts charged or taken through group charge back mechanism. Whether tax is considered as deductible on exercise of option or shares, etc and reported in periodical statements.
6 Details of any fines or penalties paid or payable by the company for violation of any law, rule or regulation.
7 Details of any expenditure incurred for purposes other than in connection with business.
8 Details of appropriations or details carried to a reserve fund or capitalised in any way.
9 Amount and description of expenditure under a single account head which in aggregate exceeds Rs. 50,000 made other than by a crossed cheque or cross banking instrument
10 Details and description of payments in violation of the requirement of banking channels exceeding Rs. 15,000.
11 Details and description of expenditures of a capital nature other than that for which deductions are specifically allowed under the Income Tax Ordinance, 2001.
12 Details of salaries, wages and other benefits paid to the employees of the company in contravention of the requirements of the Income Tax Ordinance, 2001.
13 Details of payments to non-resident on which tax is not deducted at source.
14 Details of expenses paid in excess of the limits laid down in the Insurance Ordinance, 2000.
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S27
Employee training and facilities
1 Details of the expenditure incurred on employee training and facilities.
S61 & CL61,PT I, Second schedule
Charitable donations
1 Party-wise details of donations / zakat made during the year.
S70
Recouped expenditure
Details and nature of any loss or expenditure which has been allowed as a deduction in prior years and which has been recouped in the current year.
Exchange gain and Losses
Details of exchange gains and losses relating to foreign currency loans obtained specifically for importing plant and machinery which were charged to the Profit and Loss Account during the year.
S150, 151, 152, 153, 155, 156, 156A, 156B, 233, 233A, 234, 234A, 235 & 236
Deduction of taxes at source / Taxes withheld at source
1 Amount of taxes deducted at source, under relevant heads, whether being final or not.
Taxation
S147
Advance tax
Details of the quarterly advance tax paid by the company during the year.
103
Foreign Tax Credit
The company is entitled to foreign tax credit in respect of foreign income tax paid outside Pakistan.
S 59B
Group relief
1 Details of any assessed losses surrendered by the subsidiary company to its holding company, subsidiary company, or another subsidiary of the holding company along with a statement to the effect that the requirements of the Income Tax Ordinance, 2001 have been satisfied in this regard.
2 Confirmation whether all the items covered above have been correctly reflected in the tax return.
Any other items (from the profit and loss account)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
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Different treatment in prior years
1 Amount, nature and description of any items, pertaining to the current year, which have been treated in a different manner in the returns filed in prior years or orders pertaining to assessments finalised in prior years.
2 A statement to the effect that the above items have been accordingly treated in the current year along with reasons in case of not doing so.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES - INSURANCE CO.
BALANCE SHEET
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Property, plant and equipment & Intangibles
S22, 23, 23A, R12 & S24
Depreciation and initial allowance, amortization of intangibles
1 Tax depreciation and amortization schedule for the year, prepared in accordance with the requirements of the Income Tax Ordinance, 2001 (refer the attachment).
2 Initial year allowance schedule for the year in accordance with the requirements of the Income Tax Ordinance, 2001.
3 Asset wise accounting gain / (loss) on disposal of depreciable assets and intangibles.
4 Asset-wise tax gain / (loss) on disposal of depreciable assets and intangibles in accordance with the requirements of the Income Tax Ordinance, 2001.
5 Comparison of carrying amounts property, plant and equipment, and intangibles, as per the financial statements and tax depreciation / amortization schedule, specifically identifying differences in additions, if any.
6 Comparison of carrying amounts property, plant and equipment, and intangibles, as per the financial statements and tax depreciation /amortization schedule, specifically identifying differences in additions, if any.
7 Statement by the client as to the fair market value of the depreciable assets and intangibles disposed off.
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8 List of depreciable assets and intangibles that are seized to be used in the business, if any.
9 Fair market value of the depreciable assets and intangibles that are seized to be used in business, if any.
10 If the company has acquired intangibles during the year (the company is entitled to amortize and claim deduction in respect of the cost of intangibles having normal useful life exceeding one year)
11 Amount of claim of depreciation in respect of fixed assets used by the Pakistan branches and the cost of which is recorded in head office books.
Investments
S37 Capital gains 1 Detailed schedule of long term investments indicating cost and dates of acquisition.
2 Accounting gain / (loss) on disposal of long term investments.
3 Tax gain / (loss) on disposal of long term investments.
4 Consideration received for disposal of long term investments.
Deposits, Prepayments and Other receivables
S25 Pre-commencement expenditure
1 Details of the pre-commencement expenditure incurred along with relevant supporting documentation.
Other receivables
1 Nature, amount and description of significant items appearing in the other receivables balance.
Liabilities against assets subject to finance leases
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S28
Profit on debt, financial costs and lease payments
1 Schedule of lease rentals paid by the company to the specified persons during the year.
2 Amount charged as finance costs pertaining to lease rentals during the year.
Retirement benefits obligation
1 Please refer the administrative, distribution and other operating expenses area.
Trade and other payables & Provisions
S34(5), 34(5A) & 34(6)
Liability unpaid for more than 3 years
1 Aging of trading liabilities and accruals.
2 Details regarding subsequent payment of liability offered for tax as a result of operation of S34(5) of the Income Tax Ordinance, 2001.
Provisions 1 Break-up of closing balance of provisions indicating the ageing and nature of amounts.
2 Schedule of amounts provided for during the year.
3 Schedule of provisions utilised during the year.
Any other items (from the balance sheet)
1 Details regarding the nature, amount and description of any other items not covered by the aforementioned clauses.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES -INSURANCE CO.
TRENDS, RATIOS AND ANALYSIS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
1 Variance and ratio analysis of the gross profit for three years along with the reasons for variations.
2 Variance and ratio analysis of the net profit for three years along with the reasons for variations.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES - INSURANCE CO.
RELATED PARTY TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27
Transactions with related parties
1 Party-wise break-up of related party transactions indicating the nature of relationship, the nature and amount of the transaction and the trade terms governing such transaction.
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES- INSURANCE CO.
NON-RECURRING TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Non-recurring transactions
1 Nature, amount and description of material non-recurring transactions carried out during the year.
Definition of non-recurring transaction
A transaction is considered non-recurring which, either by virtue of number of occurrences (e.g. one-off) or amount, is exceptional in nature.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR TAXATION PURPOSES -INSURANCE CO.
RECONCILIATION WITH THE TAX RETURN FILED
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Reconciliation between statement of additional information and tax return filed
1 Nature, amount and description of any differences between the additional information and the tax return filed, along with the explanations and reasons thereof.
2 Amount of tax refundable is adequately disclosed in the financial statement.
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Annexure “J”
MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
TABLE OF CONTENTS
Serial Number Name of the attachment containing the additional information
1. General Information
2. Accounting Policies and Methodology
3. Profit and Loss Account
4. Balance Sheet
5. Trends, Ratios and Analysis
6. Related Party Transactions
7. Non-recurring Transactions
8. Reconciliation with the Tax Return Filed
Tax Audit Framework
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
GENERAL INFORMATION
Sales Tax Act 1990 / Federal Excise
Act 2005; section reference
Description Information subject to audit
Name of the company
Registered address
No. and address of branches, offices, outlets, warehouse, etc
Sales Tax Registration No.
Registration Status
Financial Year
Principal Nature of business
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
ACCOUNTING POLICIES AND METHODOLOGY
Sales Tax Act 1990 / Federal
Excise Act 2005; section reference
Description Information subject to audit
7, 22 & 73 Method of accounting
1. The company's policy statement pertaining to the method of accounting followed by the company, whether it is accrual based accounting or cash based accounting.
Stock in Trade 1. The company's policy statement pertaining to the method of computation of the cost of stock-in-trade, whether it is computed on the basis of absorption-cost method or prime-cost method.
2. The company's policy statement pertaining to the cost formula used to compute the value of stock, whether it is the FIFO method or the average-cost method.
3. The company's policy statement as to the procedure of goods inward, production, storage and sale along with documentation involved therein. Likewise, procedure of rendering of services
4. Steps (in order) and authorities involved in movement of goods from inception till final sale / service and flow of information / documents from one authority to other
Revenue Recognition
1. The company's policy statement pertaining to policy of Revenue Recognition
Fixed Assets 1. The company's policy statement pertaining to capitalisation of fixed assets
Tax & Duty Structure
1. The company's policy statement on the overall tax / duty regime applicable to the it, e.g., VAT, Retail Price, Minimum Valuation Addition, Fixed Value Addition, Zero Rated, etc along with the reference of ancillary
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provision of the Act or notification
Operations 1. The company's policy statement on major inputs used in business with their respective tax / duty applicable thereon
2 The company's policy statement on visible and invisible wastage in production of finished goods and packing materials
3 The company's policy statement regarding procedure of filing of sales tax returns and payment of tax.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
PROFIT AND LOSS ACCOUNT
Sales Tax Act 1990 / Federal
Excise Act 2005; section reference
Description Information subject to audit
22, 25, 36 Sales 1. Sales Reconciliation of the following types:
- Between invoice reports and audited accounts
- Between sales tax returns and audited accounts
- Between income tax return and sales tax return
- Between special returns and monthly returns
- Between excise and sales tax records - Between audited and management
accounts, if any particularly foreign reporting package
2. Details of summaries filed under section 26(5) and Annual Returns
3. Break-up of sales into sales falling under the normal tax regime, retail price mechanism, zero rated, exempt, sales under concessionary notifications, minimum value addition / fixed value addition, multiple rate sales, export sales and sales of commercial imports.
4. Month wise position of sales tax cum federal excise returns for the audit period
5. Reasons for declining sales trends, if any
6. Analysis of both visible and invisible wastage occurred in production of finished goods and packing materials for the last 2 years and reasons for variation
7. Details of Debit / Credit Notes issued /
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received
8. Discount Policy
9. Details of gate passes, bilty, etc issued during the audit period
10. Party-wise break-up of transactions with associated companies indicating the nature of relationship, the nature and amount of the transaction and the trade terms governing such transaction.
11. Details of goods;
- distributed free of cost to customers, employees, directors, vendors, clients, guests, etc during the audit period
- consumed in-house as part of taxable activity
12. Party wise details of tax withheld by withholding agents, certificates issued to the company along with the tax period in which they were so claimed in the return
13. Price Structure of all the products during the audit period separately indicating the date of change of such prices
14. Average price(s) of identical products in the open market, if available, for the last 2 years and reasons for differences with company's declared prices
15. Details of all scrap / waste material / by product
16. In case of sale / exports under DTRE, reconciliations supported by shipping bills
Purchases 1. Purchase Reconciliation of the following types:
2. - Between invoice reports and audited accounts
- Between tax return and audited accounts (indicating the head of account
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in the financial statements)
- Between income tax return and sales tax return
- Between special returns and monthly returns
3. Break-up of purchases into taxable, zero rated, exempt, imports, etc
4 Reasons for heavy purchases / imports, piling of unusual stock, if any
5 Details of major suppliers and their sales tax registration #
6. Goods purchased in auction during the year and evidences thereof
7. Records of commercial imports and period of subsequent consumption / sale thereof
8. Analysis of Gross Profit for the last 2 years and reasons for variations
9. Quantitative analysis of goods manufactured to ascertain goods sold along with reconciliation of the same with quantities of goods sold as per reports along with reasons for any significant variation.
10. Analysis of production loss for three years along with reasons for variation.
11. Details of adjustment notes filed and adjustment advices issued to the company
8 read with SRO 490(I)/2004 of Sales Tax Act 1990 & Section 3A, 6 read with SRO 655(I)/2007 Inadmissible / Conditional Input Adjustments
12 Detail of Vehicles (falling under Chapter 87 of Custom Act 1960) purchased/imported, Foods & Beverages consumed, Gift & Give Always made, Electricity & Gas Supplied to residential colonies and bills of mobile telephones (only for services sector liable to sales tax under Provincial Ordinance 2000)
13. Details of input taxes claimed for prior periods
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with date of respective invoices
14. List of input tax / excise duty claimed on major goods and services during the audit period and their specific usage in taxable activity
15. Details of apportioned input tax / excise duty
16. Details where payment of purchase proceeds was not made via banking channels and beyond the maximum time allowed under section 73 of the Sales Tax Act 1990
17. Details of all purchases exceeding Rs. 50,000 with cross reference of the bank statement
18. Details where purchase proceeds were knocked off in accounts
19. Details where purchase proceeds were discharged by way of consideration other than cash
20. Details where federal excise duty was adjusted without realising the sale proceeds and duty thereon
21. Details of federal excise and special excise adjusted in the returns and nature of usage thereof in the business activity
22. Details of input tax claimed as 'stock in trade'
23. Details of royalty, technical fee, franchise fee, insurance paid during the audit period
24. Details where the value addition tax was not adjusted by the company in tax return
25. Whether separate subsidiary record maintained for all commercial imports to keep a track on imported value, value addition tax paid and ultimate profit earned thereon? If not, what is the average profit margin on sale of imported goods in the tax period?
26. Details where credit and debit notes were not obtained / issued.
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27. Details of excise duty (under sales tax mode) claimed by the company during the audit period.
28. Details of tax periods in which exemption from section 8B was claimed by the company and basis thereof
29. Details where FED adjustment was claimed on goods which were not directly used as input goods for the manufacture of goods specified in 1st Schedule
30. Instances where FED adjustment was claimed on accrual basis
31. Details of insurance proceeds, if any, received from insurance company
32. Confirmation whether all the items covered above have been correctly reflected in the tax return.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
BALANCE SHEET
Sales Tax Act 1990 / Federal
Excise Act 2005; section reference
Description Information subject to audit
22, 25, 36 Property, plant and equipment
1. Details of fixed assets disposed off during the year
2. Details of fixed assets disposed off during the year on which input tax was claimed by the company
3. Details of plant and machinery acquired by the company
4. Details of assets capitalised during the audit period on which respective input tax was prorated over 12 months time
Stock in trade 1. The opening value of stock-in-trade as at the opening balance sheet date.
2. The cost of stock-in-trade acquired during the year
3. The closing value of the stock-in-trade as at the closing balance sheet date.
4. Break-up of opening and closing values of stock in trade into manufactured goods and commercial imports.
5. Quantity reconciliation of stock movement during the audit period especially goods manufactured and sold during the audit period
6. Extent of physical verification of closing stock in trade, if performed; otherwise a statement explaining the reasons for non performance of physical verification along with the explanation regarding how the closing balance of stock in trade has been verified.
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7. Details of goods charged off in accounts as obsolete, damaged, slow moving, expired and treatment given in tax records
8. Reasons for difference in inventory, if any, between books and physical count
Stores & Spares 1. Stores, spares, components and sub components purchased during the year.
2. Details of stores / parts purchased as zero rated
Tax refunds due from the Government
1. Details of claim(s) supported along with refund acknowledgement receipt
2. Details of sales tax refund / excise drawback which could not be adjusted in the returns and separately filed with the department
3. In case of export refunds, the objection memo or analysis sheet generated by STARR
Bank Balances 1. Details of all bank accounts and their declaration to the concerned Collectorate
2. Nature of all significant Credit Entries appearing in bank accounts with their cross reference with sale invoices / sales ledger control account
Advance from customers
1. Customer and date wise reconciliation between opening balances of advances, advances received during the year, adjusted against sales during the audit period and closing balance thereof
Tax / Duty Payable
1. Details of tax / duty payable and reconciliation between sales tax control A/c and return
2. Details of arrears, additional tax or penalty payable by the company
3. Details of tax paid under amnesty scheme
4. Reasons for filing revised return (in case of self revision)
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5. Details where application for condonation is made by the company under section 74
Contingencies 1. Details of all sales tax / excise duty matters under dispute or sub judice before any Court / Authority
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
TRENDS, RATIOS AND ANALYSIS
Description Information subject to audit
1. Variance and ratio analysis of the gross profit for three years along with the reasons for variations.
2. Variance and ratio analysis of the net profit for three years along with the reasons for variations.
3. Stock in trade turnover ratios for three years (only applicable to companies engaged in manufacturing and trading).
4. Raw materials consumed as a percentage of cost of goods manufactured, for three years (only applicable to companies engaged in manufacturing).
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
RELATED PARTY TRANSACTIONS
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
S85, 108, R20-27 Transactions with related parties
1. Party-wise break-up of related party transactions indicating the nature of relationship, the nature and amount of the transaction and the trade terms governing such transaction.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
CONTRACTUAL AGREEMENTS
Sales Tax Act 1990 / Federal
Excise Act 2005; section reference
Description Information subject to audit
Toll Manufacturing Agreements
DTRE Exemptions
Authorization for Zero Rating issued by Tax Department under the Sales Tax Rules 2006
Lease Agreements
Rental Agreements
Hire Purchase Agreements
Import / Export Agreements
Financing / Loan Agreements
Sale / Purchase Agreements
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
NON-RECURRING TRANSACTIONS
Sales Tax Act 1990 / Federal
Excise Act 2005; section reference
Description Information subject to audit
Non-recurring transactions
1. Nature, amount and description of material non-recurring transactions carried out during the year.
Definition of non-recurring transaction
A transaction is considered non-recurring which, either by virtue of number of occurrences (e.g. one-off) or amount, is exceptional in nature
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
RECONCILIATION WITH THE TAX RETURN FILED
Income Tax Ordinance, 2001; section reference
Description Information subject to audit
Reconciliation between statement of additional information and tax return filed
1. Nature, amount and description of any differences between the additional information and the tax return filed, along with the explanations and reasons thereof.
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MODEL STATEMENT OF ADDITIONAL INFORMATION FOR SALES TAX & FEDERAL EXCISE PURPOSES
Quantity
Finished goods
Raw and packing
materials
Stores and
spares
Opening balance
Purchases / Manufactured
Less: Closing balance
Sold / Consumed
Sold / Consumed as
per the financial
statements
Difference
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