ISLAMABAD: The federal government is preparing a major overhaul of Pakistan’s tax administration system by restructuring the Inland Revenue Service of the Federal Board of Revenue into three independent wings. The move aims to reduce tax evasion, improve compliance, and eliminate opportunities for collusion between taxpayers and tax officials.
The proposed operating model, developed after studying tax administration frameworks in countries including India, Australia, Singapore, United Kingdom, and Netherlands, is expected to be implemented in phases over the next three years.
According to official assessments, Pakistan’s existing tax administration system suffers from a structural weakness because the same tax officer currently handles audit, assessment, and enforcement functions for the same taxpayer. Authorities believe this concentration of powers creates opportunities for manipulation and weakens compliance enforcement.
Under the new model, Inland Revenue operations will be divided into three separate units. The National Faceless Audit Wing (NFAW) will conduct risk-based audits through a centralized digital system where audit cases are selected through automated algorithms and tax officers remain anonymous.
The National Assessment Wing (NAW) will be responsible for issuing assessments, processing refunds, handling exemption requests, and issuing show-cause notices. The Field Operations Wing (FOW) will focus on taxpayer registration, tax base expansion, enforcement actions, prosecutions, and field verification activities.
Officials say available data highlights the scale of underreporting within the economy. Information compiled by Pakistan Revenue Automation Limited indicates that 8,697 individuals hold bank deposits worth around Rs. 750 billion despite declaring zero income. Data also shows that nearly 99 percent of individuals with deposits exceeding Rs. 10 million reported income levels significantly below what their banking transactions suggest.
The government has identified multiple revenue generation initiatives under the reform agenda, with several measures expected to begin during fiscal year 2026-27. Authorities plan to deploy automated discrepancy detection systems that will compare tax declarations with banking, property, and vehicle ownership records to identify underreporting and potential tax evasion.
The government is also planning to introduce economic transaction restrictions that could prevent individuals from carrying out property and vehicle transactions until outstanding tax issues are resolved. At the same time, the Sales Tax Compliance System will compare digital invoicing records with monthly sales tax returns to identify ghost buyers, disappearing suppliers, and businesses involved in underreporting sales.
Within the next two years, authorities intend to establish a dedicated High Net Worth Individuals Cell to target wealthy individuals who remain outside the effective tax net. The initiative will utilize wealth profiles generated through a centralized database along with information related to utility consumption, travel records, lifestyle indicators, and field intelligence.
The entire framework will be supported by a Central Data Hub being developed by PRAL, which will integrate taxpayer information from organizations including National Database and Registration Authority, State Bank of Pakistan, and Securities and Exchange Commission of Pakistan. The government is also developing IRIS 3.0, a next-generation workflow and case management platform designed to support automated tax administration.
Officials say future audits will originate only through AI-powered risk engines and data-driven triggers generated by the Central Data Hub, effectively ending discretionary audit selection by tax officers. Separate artificial intelligence systems for income tax and sales tax compliance will continuously monitor risks and support enforcement actions.
The proposed reforms are based on the Organisation for Economic Co-operation and Development Tax Administration 3.0 framework, which promotes digital, data-driven, and taxpayer-centric tax administration. The model also includes digital invoicing, pre-filled tax returns, automated taxpayer registration, digital payment integration, taxpayer self-service portals, and compliance reminders through SMS, email, and WhatsApp.
The government expects the new operating structure to strengthen transparency, improve tax collection, expand the tax base, and significantly reduce Pakistan’s trillion-rupee tax compliance gap over the coming years.
