ISLAMABAD: The Federal Board of Revenue (FBR) has begun expanding its use of artificial intelligence to scrutinise individual tax returns.
The automated system will detect factual and legal errors and identify potential discrepancies before authorities initiate legal or penal proceedings.
The FBR has proposed draft rules titled “38-B Procedure for electronic scrutiny and intimation of issues detected by the automated system.” The proposed changes amend the Income Tax Rules, 2002.
The rules will be finalised after a three-day period for stakeholder feedback.
How the AI System Will Work
Under the proposed mechanism, the FBR’s automated system will analyse information available to tax authorities.
It will cross-match information declared in income tax returns with other available data. The system will then flag potential discrepancies for taxpayers to clarify.
The FBR will send automated advice or advance intimation through the IRIS portal. The notice will identify factual mistakes, legal errors or other discrepancies found during the electronic scrutiny process.
The system will give taxpayers an opportunity to explain the issue. They can also correct errors or take other corrective measures before the authorities consider enforcement action.
Importantly, the detection of a discrepancy will not automatically trigger legal or penal proceedings.
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Taxpayers to Get Time to Respond
Under the proposed rules, taxpayers will first receive an electronic notification about discrepancies found in their returns.
The taxpayer will have at least seven days to respond. They can clarify the discrepancy or rectify the identified issue within the prescribed mechanism.
If no response is received, the system will issue another reminder. The reminder will provide an additional period of at least seven days.
An Inland Revenue officer with jurisdiction over the taxpayer may also issue the advance intimation.
The relevant officer will review the taxpayer’s response. The officer will also consider cases where the taxpayer does not respond.
After reviewing the case, the officer may take appropriate action under the relevant provisions of the Income Tax Ordinance and applicable rules.
Automated Scrutiny With Human Oversight
The proposed mechanism would introduce an automated scrutiny layer immediately after income tax returns are processed.
However, the system would not independently determine whether a taxpayer should face enforcement action.
That decision would remain with the relevant Inland Revenue officer. The officer would assess the discrepancy and the taxpayer’s response before taking further action.
The proposed system is aimed at allowing taxpayers to resolve errors at an early stage. It could also help the FBR identify inconsistencies by comparing tax declarations with information already available to the authorities.
