Reimagining Pakistan’s tax administration—II

PRAL should be strengthened as a national tax technology authority responsible for:

• Taxpayer registration and integrated taxpayer portals;

• Design, integration and maintenance of income tax, sales tax, future RGST and other return forms;

• Payment processing and tax collection systems operated on behalf of federal and provincial authorities;

•Refund workflow and status-tracking systems;

• Artificial intelligence, risk analytics and faceless assessment systems;

• Audit selection, data warehousing and business intelligence;

• Information exchange, cybersecurity and digital taxpayer facilitation; and

• Technology, taxpayer-support and data-management offices in all major cities.

The long-term objective should be one national digital platform through which taxpayers can register, file returns, make payments, claim refunds and access relevant services regardless of the particular federal or provincial tax involved. Future RGST integration and information-exchange systems should also be developed through PRAL rather than through disconnected institutional platforms.

Reorganising FBR around core functions

Following the transfer of customs policy, strategic tax policy, legal and audit functions, and until implementation of a fully integrated RGST regime, FBR should continue to administer income tax and sales tax. Its remaining structure should focus on specialised operations, international taxation, expansion of the tax base and taxpayer service. Refund processing should be kept entirely outside the Operations Department through a separate and independent department.

1. Operations department

The Operations Department should remain the principal taxpayer-facing arm of FBR for field administration, assessment, taxpayer facilitation and enforcement. Its non-faceless stream should adopt a national industry-based model, with specialised countrywide zones for major sectors, including:

• Banking, insurance and financial institutions;

• Oil and gas;

• Fertiliser;

• Cement;

• Sugar;

• Textiles;

• Tobacco;

• Technology and digital services; and

• FMCG and consumer products.

Businesses outside the specialised sectors may continue to be administered through geographical formations. Greater resources should, however, be deployed in secondary cities, semi-urban locations and rural areas where significant economic activity remains undocumented.

2. Faceless assessment directorate under PRAL

The faceless assessment function should operate under PRAL rather than under FBR’s conventional field formations. Since faceless assessment depends on integrated data, automated workflows, artificial intelligence and objective risk parameters, it is better suited to an institutionally separate technology organisation.

The programme should initially focus on traders, commercial importers, builders, developers and other non-corporate sectors through pilot projects. It should then be gradually expanded to additional sectors and areas, particularly where the National Tax Base Expansion Department identifies serious revenue gaps, non-compliance risks or documentation deficiencies.

Routine scrutiny, reconciliations, compliance reviews and risk-based verification should progressively move towards faceless administration, allowing field formations to focus on complex matters, taxpayer facilitation and enforcement requiring physical intervention.

3. International taxation department

A specialised International Taxation Department should be established as Pakistan’s centre of excellence for cross-border taxation and investor certainty. Its responsibilities should include:

• Exchange of Information and Automatic Exchange of Information;

• Tax treaty negotiations;

• Mutual Agreement Procedures;

• Advance rulings for foreign investors;

• Transfer pricing;

• International tax disputes; and

• Foreign-investor facilitation and certainty mechanisms.

4. National tax base expansion department

A National Tax Base Expansion Department should be created by integrating Inland Revenue Intelligence functions, Benami initiatives and existing tax-base broadening programmes. At least 25 percent of FBR’s existing workforce should be allocated to this department, whose principal mandate should be identifying, documenting and onboarding new taxpayers rather than repeatedly pursuing existing compliant taxpayers.

Its responsibilities should include identification of undocumented sectors, taxpayer registration, data analytics, risk profiling, detection of under-reporting, preparation of enforcement cases, measurement of tax gaps and monitoring of revenue generated from newly documented sectors.

The department should work closely with PRAL and use third-party databases, digital-payment information, customs records, property data, utility consumption records and banking information. Cases identified through data analysis should be channelled to the Faceless Assessment Directorate for transparent verification, particularly in sectors and regions where serious revenue gaps exist.

The department should also coordinate with the Pakistan Bureau of Statistics and the State Bank of Pakistan. The difference between estimated economic activity and actual tax collections should provide the basis for measuring the tax gap. Performance should be separately reported through new registrations, revenues from newly documented taxpayers and progress in reducing that gap over a rolling three-year period.

5. Independent refund processing department

Refund processing should be placed in a separate department of FBR that is fully independent of the Operations Department. Operational formations should not control the approval, processing or release of refunds.

Refund claims should be forwarded directly to the Independent Refund Processing Department through PRAL’s digital workflow. The department should scrutinise the claims under clear, published criteria and process admissible refunds with complete transparency. Taxpayers should be able to track the status of claims through the online portal, and reasons for any delay, adjustment or rejection should be recorded and communicated digitally.

The department should be subject to oversight by an Internal Audit Directorate of FBR or an independent internal audit function designated by the Government of Pakistan. Processed refunds should be subject to periodic, risk-based post-refund audit. This would provide accountability without allowing audit formalities to become a reason for withholding legitimate refunds.

A clear institutional separation between assessment and refund processing would reduce conflicts of interest, improve consistency, limit discretionary delays and help restore taxpayer confidence that legitimate amounts due from the government will be paid in a timely and transparent manner.

Conclusion

Pakistan’s tax reform debate has traditionally focused on rates, exemptions and enforcement measures. The deeper challenge, however, lies in institutional design. Restoring taxpayer trust should be the central objective of reform.

An autonomous FBR, a constitutionally compliant integrated RGST framework, a National Tax Audit Authority, a centralised Revenue Law Division, a Planning Commission-led tax policy framework, a strengthened and institutionally separate PRAL, an independent refund department and specialised units for international taxation and tax-base expansion can provide the foundations of a modern revenue administration.

The ultimate objective should not merely be higher collection. It should be a transparent, technology-driven, professionally managed and taxpayer-friendly system that promotes investment, reduces disputes, broadens the tax base, strengthens federal-provincial coordination and supports Pakistan’s long-term economic growth.

(Concluded)

(The writer is a seasoned Chartered Accountant, based in Karachi, with over 24 years of post-qualification experience in taxation)

Copyright Business Recorder, 2026