FBR urged to remove ‘anomalies’ in income tax return

ISLAMABAD: The Pakistan Tax Bar Association (PTBA) has urged the Federal Board of Revenue (FBR) to remove legal and technical anomalies in the newly introduced Income Tax Return for Tax Year 2026 and the Fixed Tax Scheme for small traders, warning that the existing framework could create serious compliance issues for taxpayers.

In a representation submitted to FBR Chairman Rashid Mehmood Langrial, the PTBA welcomed the Board’s efforts to modernise tax administration but expressed concern over the delayed availability of the revised income tax return on the IRIS portal.

The association said the delay has significantly reduced the time available for taxpayers and tax practitioners to understand and comply with the new filing requirements.

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The PTBA pointed out that the redesigned return contains several technical and operational shortcomings, including discrepancies in imported data relating to immovable properties, incomplete withholding tax information and practical difficulties arising from the revised return format. It warned that these issues may hamper timely filing of returns and adversely affect tax compliance.

One of the major issues relates to the structural information concerning imported data of immovable properties, which is being flagged with red error marks. In addition, tax practitioners are experiencing significant difficulty in locating and verifying withholding tax information in the newly introduced auto-populated return format.

The Association also criticised the FBR for introducing the new return without adequate consultation with tax professionals and other stakeholders, stating that broader engagement could have helped identify and resolve operational issues before implementation.

“It is regrettable that the PRAL team of the FBR did not undertake meaningful consultation with the relevant stakeholders before introducing the new return format. The prescribed return is substantially different from the previous format, resulting in considerable practical difficulties for tax practitioners and taxpayers alike.”

In these circumstances, it is practically impossible for taxpayers and their authorized representatives to accurately prepare and electronically submit the Return of Total Income within the prescribed statutory time limit.

Referring to SRO 1166(I)/2026, the PTBA questioned the legal validity of the Fixed Tax Scheme for Small Traders, arguing that the prescribed Annex-I cannot substitute the statutory Return of Total Income under the Income Tax Ordinance, 2001, without explicit legal backing. It maintained that the scheme raises important legal questions regarding deemed assessment, taxpayer rights and procedural compliance.

In the scheme, “Annex-I” has been introduced in place of the prescribed format of the Return of Total Income, as provided under Rule 34(2), Annex-XIII, Part-IV of the Second Schedule to the Income Tax Rules, 2002. This raises a fundamental legal question as to whether Annex-I introduced through the said scheme has sufficient statutory backing under the Ordinance and, consequently, how such Annex-I would acquire the legal status of a return capable of culminating into an assessment order deemed to have been issued by the Commissioner of Inland Revenue under Section 120(1) of the Ordinance.

The PTBA further sought clarification on key aspects of the scheme, including eligibility criteria for retailers and shopkeepers, treatment of taxpayers having multiple sources of income, audit protection, withholding tax obligations, penalties for non-compliance and exemption from Point-of-Sale (POS) integration and digital invoicing requirements.

The PTBA urged the FBR to revisit the new return format and the Fixed Tax Scheme in consultation with stakeholders to remove ambiguities, ensure legal certainty and facilitate voluntary tax compliance before full implementation.

Copyright Business Recorder, 2026