The Federal Board of Revenue (FBR) has proposed new rules for automated scrutiny of taxpayers. The rules also expand the use of artificial intelligence and automated systems for checking individual income tax returns.

Under the proposed mechanism, the system will automatically examine tax returns to identify factual errors, legal mistakes, and possible discrepancies. Taxpayers will be informed about these issues and given an opportunity to explain or correct them before the FBR takes any legal or penal action.

The proposed rules, titled “Procedure for electronic scrutiny and intimation of issues detected by the automated system,” have been introduced through amendments to the Income Tax Rules, 2002. The draft will be finalised after receiving feedback from relevant stakeholders.

FBR Unveils New Rules for Automated Scrutiny of Taxpayers

The new system will use information already available with tax authorities to analyse tax returns. It will cross-check the information declared by taxpayers against other available data to identify possible inconsistencies.

When the system detects an issue, it will generate an advance notification for the taxpayer through the FBR’s IRIS portal. The notification will explain the factual or legal issue and allow the taxpayer to provide clarification or correct the return.

Importantly, simply detecting a discrepancy through the automated system will not automatically lead to enforcement action.

Taxpayers to Get Time to Respond

Under the proposed rules, taxpayers will receive at least seven days to respond to a discrepancy identified in their tax return.

They will be able to explain the issue or make the required correction through the prescribed process. If a taxpayer does not respond within the given period, the system or relevant tax officer will issue another reminder, providing an additional period of at least seven days.

The relevant Inland Revenue officer will then review the taxpayer’s response. If there is no response, the officer will also consider that before deciding what action should be taken under the Income Tax Ordinance and applicable rules.

Human Oversight Will Remain

Although the new system will automate the initial scrutiny process, the final decision will remain with the relevant tax officer.

The officer will assess the discrepancy and the taxpayer’s response before deciding whether further action is necessary. This means the automated system will mainly serve as an early screening and notification mechanism rather than directly imposing penalties or starting legal proceedings.

The proposed framework could make the tax scrutiny process more systematic by allowing the FBR to identify potential errors at an early stage. At the same time, giving taxpayers an opportunity to clarify or correct discrepancies before enforcement action could help reduce unnecessary disputes.

The initiative represents another step toward greater automation in Pakistan’s tax administration and could increase the use of data-driven systems in the assessment and monitoring of taxpayers.