Having engaged with the Federal Board of Revenue (FBR) for more than four decades from both internal and external perspectives, the author views the agency’s inability to collect taxes equitably as a major obstacle to Pakistan’s sustained economic growth.
The fundamental issue resides in tax administration rather than tax policy; nevertheless, administrative failures consistently lead to the adoption of flawed policy interventions to offset fiscal deficits. Resolving this chronic challenge remains imperative.
Massive under-declaration persists, as past initiatives aimed at addressing the issue have failed to produce results. During an eight-month tenure as the chairman of the FBR, the author had secured the then prime minister’s approval in October 2019 for a restructuring scheme designed to downsize, right-size human resources and enhance data management capabilities.
However, this initiative was ultimately abandoned due to a lack of institutional will within a bureaucracy-led government reluctant to relinquish its authority. By 2026, maintaining the status quo has become unsustainable.
Fortunately, tax automation in Pakistan operates outside the FBR through a state-owned enterprise (Pakistan Revenue Automation Limited: PRAL) established under the Companies Act that handles data management and taxpayer interaction. This organizational setup presents a critical opportunity to overhaul Pakistan’s tax administration, driving home a clear imperative: transition to PRAL, and phase out the FBR.
The core advantage lies in operational agility—hiring, retaining, and downsizing personnel at PRAL can occur directly, bypassing archaic bureaucratic hurdles.
Currently, the FBR maintains a staff of approximately 25,000, whereas PRAL operates with just 1,000 employees. From the author’s perspective, no fewer than 15,000 FBR positions are entirely surplus. A prime illustration of this redundancy is the position of traditional “notice servers”, who were historically tasked with hand-delivering printed notices to taxpayers.
In the current system, all taxpayer correspondence is processed electronically through PRAL’s digital infrastructure, making these roles unnecessary. This overstaffing similarly pervades other administrative cadres, including typists and stenographers. Likewise, the registration of new taxpayers and the issuance of National Tax Numbers — functions central to tax administration and policy — follow this pattern.
Approximately 10,000 to 15,000 personnel could be reassigned from their current roles. These employees could form a dedicated division focused on surveying and mapping economic activity across smaller towns and cities.
In Pakistan, taxation remains predominantly confined to major urban centers, with virtually no tax presence or compliance structure in smaller municipalities - even though these areas account for more than half of the national economy. A closer look at the agricultural sector reveals a similar imbalance: both farmers and end-consumers bear the financial strain, while intermediaries (“Arthis”) siphon off margins without incurring any tax liability.
Reallocating surplus FBR personnel to monitor and integrate these unbanked transactions into the formal tax system represents a critical reform measure.
Furthermore, the Finance Act 2026 introduces a proposed framework for faceless audits, the entire operational backbone of which will be supplied by PRAL. This article aims to demonstrate how the FBR can pare down its operations to a minimal workforce while transferring all direct taxpayer engagement to PRAL.
Although the author recognizes that the bureaucratic establishment in Islamabad may resist these proposals, such transformation has now become unavoidable.
Empowering PRAL’s chief operating officer and severing his administrative subordination to FBR officials constitutes the essential first step of this structural transition. Although PRAL’s founding governance framework incorporates a significant private-sector presence on its Board, operational reality tells a different story.
The ex officio appointment of the FBR chairman as the head of PRAL’s Board perpetuates the entrenched notion that the CEO reports to the FBR chief rather than to the full Board - a perception and practice that must be dismantled.
Drawing from personal experience as FBR chairman, the author views this position as uniquely powerful, sensitive, and, when exploited through unfair means, lucrative. To address this excessive centralization of authority, power must be decentralized across three distinct institutions: a Tax Policy Board within the Ministry of Finance; an independent PRAL Board comprising at least seven members - with a private-sector majority of four, including the Chair; and the Federal Board of Revenue, restructured into the Pakistan Revenue Services.
To provide greater clarity, the matrix below outlines a proposed allocation of responsibilities between PRAL and the FBR, specifically using direct tax administration as an illustrative example:
While the preceding table does not exhaustively list every activity required for direct tax administration, it clearly demonstrates that PRAL can handle nine out of the ten identified operational steps. Assigning these functions to PRAL offers a major advantage: minimizing direct human contact, which serves as the primary driver of corruption and taxpayer harassment.
Remarkably, PRAL already executes five or six of these nine steps today; however, its role remains relegated to clerical support rather than substantive administrative leadership.
The FBR bureaucracy continues to treat PRAL as a mere auxiliary unit. In an era where artificial intelligence is transforming every domain, this approach is obsolete. PRAL and automated systems - rather than personnel - must take the lead and drive decision-making.
Based on extensive experience in the field, the author believes a primary obstacle to advancing automation and expanding PRAL’s role is the collusion between tax advisors and tax officers. A widespread belief holds that increased automation would significantly erode the role of tax advisors; however, the author considers this view incorrect.
In any developed society, tax advisors serve two fundamental functions. First, they assist taxpayers in filing income tax returns using information gathered from diverse sources. This responsibility will persist - and likely to grow - because as accessible data expands, filing returns becomes increasingly complex and critical.
Second, advisors support taxpayers in addressing queries raised by tax officers regarding specific tax treatments. This role will likewise endure, as audits inevitably generate findings subject to disagreement between tax officers and taxpayers.
It is true, however, that the demand for advisors will decrease in instances where illicit collusion enables taxpayers and officers to bypass proper disclosures during audits. Nevertheless, this situation represents a temporary phase.
As economic transaction data tied directly or indirectly to National Identity Cards becomes increasingly accessible, concealing financial activities from tax returns grows progressively more difficult. Consequently, while the responsibilities of tax advisors are evolving, their importance remains undiminished.
Regrettably, past tax reform commissions and initiatives have consistently mischaracterized PRAL as a mere subsidiary IT department of the FBR, failing to advocate for its institutional autonomy or capacity enhancement. This oversight stems directly from administrative maneuvering by the bureaucracy, which has repeatedly influenced the findings of such bodies. A telling excerpt from the 2015 Tax Reform Commission (TRC) report highlights this dynamic:
“The Tax Reform Commission (TRC) has asked the government to abandon FBR’s IT arm-Pakistan Revenue Authority Limited (PRAL) and come up with a new entity having an independent board comprising of nine professionals. The PRAL was incorporated in June, 1994, to deal with automation of tax administration and its operations.”
Given the rapid evolution of information technology in recent decades, continuing to treat PRAL as a subordinate IT arm rather than granting it operational independence would be disastrous.
While critics may argue that revenue agencies elsewhere rarely maintain complete independence, Pakistan’s unique context - marked not only by corruption and harassment, but by pervasive human intervention that erodes public trust - demands a distinct structural separation.
Copyright Business Recorder, 2026