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VAT Procedure

Value Added Tax (VAT) is structured for efficient tax collection, reduction in corruption, easy inter-state movement of goods and a lot more.

The VAT Law provides for self-assessment to facilitate easy compliance and payment of taxes. It also explains the notices, the demand and recovery provisions when the taxes are unpaid, short paid and/or returns are not filed.

Broadly, the VAT Procedures can be listed as:

  • Audits
  • Assessment
  • Demand and Recovery
  • Advance Ruling
What does the term Tax Audit mean?

Tax Audit means “A procedure undertaken by the Authority to inspect the commercial records or any information or data related to a Person carrying on Business.”

Why should Tax Audit be conducted?

VAT law works on self-assessment basis where the information furnished by the taxpayer is correct unless otherwise established.

Tax audit is conducted in order to ascertain the extent of compliance of law and to avoid the instances of tax evasion and to avoid the non-compliances of provisions of law

Who will conduct Tax Audit?

Tax audit will be conducted by member of authority’s staff appointed as a Tax Auditor

What is the procedure for conducting Tax Audit?

Tax audit shall be performed at a place where books of accounts and records are stored (the place may be either office of the person or his place of business or any other place where such documents are stored.

When should the Tax Authority inform the person for conducting the audit?

The Tax authority must inform the concerned person at least 5 days prior to the conducting of a tax audit.

Why is authority required to inform the auditee prior to the conduct of audit?

The basic aim of informing the auditee prior may be to temporarily suspend his business activities, retrieval of documents related to business from different sources and their collection at a single place.

What are the situations in which tax auditor can conduct the audit without prior intimation to auditee?

The tax auditor is allowed to enter the premises of business and conduct the audit without prior intimation in the following circumstances:

For example: Tourist buys mobile gadgets for the purpose of bringing back to home country.

  • Authority has the reason to believe that auditee is involved in tax evasion
  • Authority has the reasons to believe that temporary closure of business shall not hinder the tax audit
  • The person who has been informed about the audit attempts to hinder the conduct of tax audit in a proper manner
Whether tax auditor should obtain the permission from anyone before conducting an audit without intimation?

Tax auditor needs to obtain the written consent of the Director-General for conducting the audit without prior intimation.

Public prosecutor’s approval is required to access the place of residence of auditee

Whether the tax auditor has the right to access the original records or copies during tax audit?

Yes, while the tax audit, the Tax Auditor may obtain original records or copies thereof, or take samples of the stock, equipment or other assets from the place at which the Person subject to the Tax Audit carries on his business or which are in his possession, or may seize them in accordance with the rules that shall be specified in the Executive Regulations of this Law.

What are the timings for conducting a Tax Audit?

Tax audit will be generally conducted during the official working hours of the authority

In cases of necessity, Tax audit may be exceptionally conducted outside the business hours by the decision of Director General.

Can the authority audit the issues raised during the previous audit period? ?

The Authority may audit any issue previously audited if new information surfaces that might impact the outcome of the Tax Audit, provided that the Tax Audit procedures shall apply in accordance with the provisions of this Law and its Executive Regulations.

What are the situations in which tax authority shall issue a tax assessment?

The authority shall issue a tax assessment to determine payable tax and notify the taxable persons within 5 days of its issuance, in the following situations:

  • The Taxable Person failing to apply for registration within the timeframe specified by the Tax Law.
  • The Registrant failing to submit a Tax Return within the timeframe specified by the Tax Law.
  • The Registrant failing to settle the Payable Tax stated as such on the Tax Return that was submitted within the time limit specified by the Tax Law.
  • The Taxable Person submitting an incorrect Tax Return.
  • The Registrant failing to account for Tax on behalf of another Person when he is obligated to do so under the Tax Law.
  • There is a shortfall in Payable Tax as a result of a Person’s Tax Evasion or as a result of a Tax Evasion in which such Person was involved.

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