FRB’s AI bet

October 8, 2026

The Federal Board of Revenue’s proposal to use artificial intelligence and automated systems to examine individual income tax returns is a welcome step. Pakistan needs a tax system that is modern, efficient and fair. The use of technology can help the FBR identify mistakes and possible discrepancies more quickly while reducing unnecessary delays in the tax process. More importantly, the proposed system can give taxpayers a chance to explain or correct an issue before facing legal or penal action.

Under the proposed rules, the automated system will electronically examine information provided in tax returns and compare it with other information available to the tax authorities. If it finds a possible factual or legal issue, the taxpayer will receive a notification through the IRIS portal. This is a better approach than immediately treating every difference as an attempt to avoid tax. A discrepancy can result from a genuine mistake, incomplete information or a misunderstanding of the rules. Giving taxpayers an opportunity to respond is therefore important.

The proposal also provides a reasonable safeguard. A taxpayer will initially get at least seven days to explain the issue or make a correction. If there is no response, a reminder will be issued and another period of at least seven days will be provided. This process can help prevent taxpayers from being punished simply because they missed an electronic notice or needed more time to understand an issue.

Another positive aspect is that the automated system will not itself decide that a taxpayer should face enforcement or penalties. The relevant Inland Revenue officer will examine the taxpayer’s response and decide whether further action is required under the law. This human review is important because technology should assist tax officials, not replace fair judgement.

The FBR should now ensure that the system is transparent, accurate and easy to understand. Taxpayers must know why an issue has been flagged and how they can respond. The system should also protect taxpayer information and avoid repeated notices based on minor or genuine errors.

If implemented carefully, the proposed AI-based scrutiny can improve tax administration and strengthen public confidence.