ISLAMABAD: The federal government has approved in principle a new centralized and digital tax operating model aimed at reducing corruption, curbing taxpayer harassment, and improving transparency within Pakistan’s tax administration system.
Prime Minister Shehbaz Sharif approved the New Tax Operating Model during a high-level meeting on Federal Board of Revenue (FBR) reforms and praised the officials who developed the initiative. The new framework will be implemented in three phases starting from October 2026.
Inspired by centralized and faceless tax systems adopted in countries such as the United Kingdom, Australia, Singapore, the Netherlands, and India, the model seeks to eliminate direct interaction between taxpayers and tax authorities through a fully digital operating environment.
Officials said the reforms are aimed at addressing long-standing concerns over discretionary powers, corruption, collusion, and weak enforcement in the existing tax administration structure.
The initiative follows findings by Pakistan Revenue Automation Limited (PRAL), which identified significant tax compliance gaps across various sectors. According to official data, 8,697 individuals holding bank deposits worth Rs750 billion declared zero income in their tax returns.
Authorities also detected widespread under-reporting in the banking and real estate sectors. Nearly 99 percent of high-deposit account holders were found to have materially under-reported banking transactions, while around 80 percent of major property buyers were found to have declared lower transaction values despite maintaining active filer status.
Under the current system, a single tax officer handles the entire tax cycle, including audit selection, assessments, notices, and recovery proceedings. Officials believe this concentration of authority creates opportunities for under-assessment, compromised recoveries, and misuse of discretionary powers.
To address these challenges, the new framework will divide Inland Revenue functions into three separate wings with clearly defined and non-overlapping responsibilities covering income tax, sales tax, and federal excise duty administration.
A National Faceless Audit Wing (NFAW) will be established in Islamabad to conduct risk-based audits using advanced analytics and data available through a Central Data Hub. Cases will be assigned automatically through algorithms, and taxpayers will not be permitted to physically visit the wing or submit manual documentation. The audit wing will not have the authority to issue tax demands or recover outstanding liabilities.
A National Assessment Wing (NAW) will handle assessment-related and quasi-judicial functions, including issuing assessment orders, show-cause notices, processing tax exemptions, and approving zero-rating refunds. The wing will remain separate from audit and enforcement functions. Hearings will be conducted online, while dedicated hearing facilities will be available at tax offices across the country.
The third component, the Field Operations Wing, will focus on taxpayer registration, enforcement, revenue recovery, prosecution, field verification, and efforts to expand the tax base. Field officers will not be allowed to assess cases, adjudicate disputes, or alter tax demands, limiting their role to verification, facilitation, registration, and enforcement activities.
The government plans to recruit around 200 officers for the audit and assessment wings through a merit-based process. Officials said market-based compensation packages and enhanced monitoring systems will be introduced to strengthen transparency, accountability, and institutional credibility.
The new model will also introduce pre-populated tax returns generated through the Central Data Hub. Information relating to salaries, bank accounts, property ownership, and vehicle registrations will automatically be integrated into tax returns, significantly reducing filing time and compliance costs for taxpayers.
A single integrated taxpayer account will further consolidate income tax, sales tax, and federal excise duty obligations, credits, liabilities, and refunds within one unified IRIS platform.
In addition, the updated framework will feature time-bound processing, automated escalation mechanisms, and greater visibility into pending tax matters, providing taxpayers with increased certainty and predictability.
Officials believe the reforms will strengthen enforcement against tax evasion while reducing compliance burdens for honest taxpayers. By digitally recording all interactions through an online portal, the system is expected to minimize direct contact between taxpayers and tax officials and reduce opportunities for corruption and harassment.
The Federal Board of Revenue may also gradually extend the faceless model to tax appeals in future phases of the reform programme.
