CAT Reserves Judgment on ICAP Audit Fee Penalty Case

The Competition Appellate Tribunal (CAT) has reserved judgment in a decade-long case pitting the Institute of Chartered Accountants of Pakistan (ICAP) against a Rs1 million penalty imposed by the Competition Commission of Pakistan (CCP) for allegedly fixing minimum audit fees, a development with significant tax compliance implications. Our tax law firm advises clients to monitor this ruling, as it could impact audit-related tax obligations and FBR scrutiny.

The dispute, rooted in 2008, stems from ICAP’s revised Accounting Technical Release 14 (ATR-14), approved by its Council in July 2008, setting minimum hourly rates and audit fees for public sector audits. The CCP, citing Section 4(1) of the Competition Ordinance, 2007, declared ATR-14 anti-competitive for controlling prices, ordering its retraction from the Members’ Handbook, a public notice, and the fine. ICAP, represented by Dr. Farrukh Nasim, defends its statutory authority under the Chartered Accountants Ordinance, 1961, arguing that minimum fees ensure audit quality and prevent undercutting, while CCP counsel counters that this constitutes collusive pricing, violating global norms, as web sources like Dawn note similar enforcement trends.

From a tax law perspective, this case could reshape audit expense deductibility under Section 29 of the Income Tax Ordinance, as inflated fees may face FBR disallowances if deemed non-compliant, triggering penalties (e.g., 5% default surcharge or Rs50,000 per instance, per standard norms). Chartered accountants and businesses relying on their services must ensure accurate tax reporting, as sales tax at 17% on professional fees under the Sales Tax Act, 1990 could be scrutinized. The ruling may also influence input tax credits under Section 8B, requiring reconciliation.

Critically, the narrative of “balancing regulation and competition” may obscure regulatory overreach—web reports like The Express Tribune suggest CCP’s aggressive stance reflects revenue protection amid Pakistan’s tax gap, potentially burdening professional sectors. Clients should prepare for FBR audits if the ruling tightens compliance.

Our firm advises clients to review audit fee structures, ensure tax compliance, and brace for FBR scrutiny, navigating this landmark tax precedent.