Govt clears faceless tax system overhaul to cut direct contact

ISLAMABAD: The federal government has approved in principle a new centralised digital tax operating model under which audits and assessments will be handled through faceless units in Islamabad, with the aim of reducing discretionary powers of field officers and limiting direct interaction between tax officials and taxpayers.

Prime Minister Shehbaz Sharif approved Pakistan’s New Tax Operating Model on Thursday and praised the tax officials who prepared the plan. According to the proposal, the rollout will begin in October this year and will take place in three phases.

The new system is modelled on arrangements used in the United Kingdom, Australia, the Netherlands, Singapore and India. The reform drive follows systemic leakages and extensive under-reporting identified by Pakistan Revenue Automation Limited (PRAL). Officials said the objective was not limited to checking collusion and corruption, but also to strengthen weak enforcement within the existing tax administration.

Compliance gaps identified in tax data

Federal Board of Revenue data highlighted large gaps in reported income and financial activity. According to the figures cited in the plan, 8,697 individuals with combined bank deposits of Rs750 billion declared zero income in their tax returns. The same review found that 98.9pc of high-deposit individuals had materially under-reported their bank flows.

Similar patterns were identified in the property sector. Despite retaining active filer status, 80pc of top property buyers were found to have consistently declared lower transaction values than their actual fiscal liabilities required.

Three separate wings to replace current structure

At present, one tax officer in a Regional Tax Office, Large Taxpayers Office or Corporate Tax Office manages the full cycle from identification and notice issuance to assessment and recovery. Officials said that concentration of powers created room for harassment, under-assessment and weakened recoveries.

Under the new model, Inland Revenue operations will be split into three separate wings with distinct legal powers and non-overlapping functions across income tax, sales tax and federal excise duty.

The National Faceless Audit Wing will be set up in Islamabad at an undisclosed location. It will carry out risk-based audits and ongoing monitoring of withholding and advance taxes through a Central Data Hub. Cases will be assigned through an algorithm, and the wing will not be allowed to issue demands or carry out recoveries. It will be able to take up cases involving taxpayers from anywhere in the country. Taxpayers will neither be permitted to visit the wing nor submit physical documents.

The National Assessment Wing, also to be based in Islamabad, will perform quasi-judicial functions. It will issue assessment orders, show-cause notices, and process zero-rating refund approvals and exemptions, but it will not conduct audits or field enforcement. Hearings will be held online, while dedicated hearing rooms will be made available at tax offices around the country.

The third arm, the Field Operation Wing, will be responsible for enforcement, including revenue recovery, prosecution, taxpayer registration, field verification and widening the tax base. However, it will not have the authority to assess cases, adjudicate matters or alter tax demands. Field officers will instead focus on verification of data, assigned information, taxpayer facilitation and registration work.

Digital filing and merit-based staffing

For the audit and assessment wings, the government plans to appoint around 200 officers on merit, offering market-based salaries and tighter surveillance arrangements to support transparency, credibility and accountability.

The proposed framework is intended to tighten enforcement against evasion while easing compliance for taxpayers who file honestly. All interactions are to be recorded digitally through an online portal, ending direct contact with tax officials.

Under the plan, taxpayers will receive pre-populated returns generated through the Central Data Hub, which will draw salary, banking, property and vehicle information to reduce filing time from hours to minutes. A single integrated taxpayer account will also bring together income tax, sales tax and federal excise duty obligations, credits and refunds in one IRIS view.

The revised system will include time-bound processing and auto-escalation features aimed at giving taxpayers greater certainty over contingent liabilities. The FBR will also retain the power to shift tax appeals independently to a faceless system in phases.