FBR’s Innovative Strategy for Tax Base Expansion Implementing the Pakistan Raises Revenue Project

FBR’s Innovative Strategy for Tax Base Expansion Implementing the Pakistan Raises Revenue Project

 The Federal Board of Revenue (FBR) in Pakistan, under the ambit of the $400 million Pakistan Raises Revenue Project (PRRP), is taking significant steps to broaden its tax base. This initiative involves incorporating millions of new taxpayers through the use of automated data sharing and advanced ICT-based business intelligence. A key aspect of this project is the role of Independent Verification Agents (IVAs), who are responsible for ensuring the registration, filing, and tax compliance of new taxpayers who have responded to FBR notices or have been identified through other means.

FBR officials are addressing the ongoing issue of differentiating between regular filers and non-filers. A common occurrence noted is that many individuals enter the tax system for transactions requiring tax compliance but later exit or file nil returns. To counter this, the IVAs are tasked with verifying the consistent engagement and compliance of these new taxpayers.

In line with the loan conditions set for the PRRP, the FBR has introduced a rule that limits the selection of cases for audit based on risk to only 10% of the total, subject to approval from the Member Audit. This move is aimed at enhancing the efficiency of the auditing process and ensuring a focus on high-risk cases.

Further restructuring has been done within the FBR’s Audit Wing, which now includes specialized Compliance and Audit Units. These units have been instrumental in conducting field audits of a significant portion of large taxpayers and executing several issue-oriented audits over the past five years. These audits are selected through a risk-based tool and closely monitored by the Compliance Unit. The completion of an audit is determined once the final report is submitted to FBR management, irrespective of any potential legal disputes initiated by taxpayers.

The World Bank (WB), which is a critical stakeholder in this project, will evaluate the FBR’s compliance with these new regulations, especially the limitation of selecting a maximum of 10% of audits annually outside the risk-based tool.

The effectiveness of these measures, as part of the PRRP, is yet to be fully realized. The project, which is set to continue until June 2025, is a pivotal step towards expanding Pakistan’s relatively limited tax base and enhancing the country’s revenue collection mechanisms.