The federal government has developed a sweeping new auto tax operating model that would reorganize the Federal Board of Revenue’s Inland Revenue Service into three separate wings, as authorities seek to tackle a tax compliance gap running into trillions of rupees and reduce opportunities for collusion between taxpayers and tax officials.
The proposed framework, which has been developed over several years using tax administration models from India, Australia, Singapore, the United Kingdom, the Netherlands, and the Organisation for Economic Co-operation and Development (OECD), is expected to be rolled out gradually over a period of more than three years.
According to official diagnostic findings, Pakistan’s existing tax administration structure suffers from a fundamental design flaw. The same tax officer currently exercises authority over audit, assessment, and enforcement functions involving the same taxpayer, creating an environment that facilitates collusion.
The new model seeks to dismantle that concentration of power by permanently separating these functions.
Officials say the scale of under-compliance is evident in available data. Records compiled by Pakistan Revenue Automation Limited (PRAL) show that 8,697 individuals hold bank deposits worth a combined Rs. 750 billion despite reporting zero income. The data also indicates that 98.9 percent of approximately 359,000 individuals with deposits exceeding Rs. 10 million declared income below the level reflected in their banking activity, while 80 percent of the top five percent of property purchasers by value are already registered taxpayers but continue to significantly under-declare their income.
The government has identified eight separate revenue generation pathways under the reform agenda. The first three initiatives are already being piloted or are close to implementation and are expected to begin generating results before the full transition to the new operating model is completed.
During fiscal year 2026-27, authorities plan to deploy rules-based discrepancy detection systems that will compare taxpayer declarations with property, vehicle, and banking data to identify underreporting. Economic transaction blocks will also be introduced to flag both filers and non-filers, requiring them to resolve outstanding tax issues before property and vehicle transactions can proceed.
At the same time, the Sales Tax Compliance System will compare digital invoicing records against monthly sales tax returns to identify ghost buyers, disappearing sellers, and under-reporting businesses. The initial rollout will focus on sectors where integration between the Central Data Hub and the risk management system is already advanced.
Within two years, authorities also intend to establish a dedicated High Net Worth Individuals Cell to address the under-taxation of wealthy individuals. The initiative will rely on wealth profiles generated through the Central Data Hub, while additional intelligence gathered from utility consumption, travel records, lifestyle indicators, and field operations will be used to identify non-filers.
Under the proposed structure, Inland Revenue operations will be divided into three distinct and independent wings:
- National Faceless Audit Wing (NFAW): Responsible for all risk-based audits through a centralized, fully digital and anonymous system. Audit cases will be allocated through algorithms, officer identities will remain hidden from taxpayers, and the wing will have no authority to issue tax demands or conduct recoveries.
- National Assessment Wing (NAW): Responsible for issuing assessment orders, show cause notices, processing refunds, and handling exemption requests. The wing will exercise quasi-judicial powers but will not conduct audits or undertake field enforcement activities.
- Field Operations Wing (FOW): Responsible for taxpayer registration, tax base expansion, enforcement, prosecutions, field verification, and economic surveillance. The wing will not have the power to assess cases, adjudicate disputes, or alter confirmed tax liabilities.
The entire operating model will be supported by two technology platforms developed by PRAL. The Central Data Hub will serve as a centralized repository integrating income, wealth, banking, property, vehicle, and third-party information from institutions, including NADRA, the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan, and other designated entities. IRIS 3.0, a next-generation workflow and case management platform being developed with EY, will support automated case selection and administration.
Officials said audit proceedings under the faceless system will only originate through risk engine triggers generated by the Central Data Hub or through taxpayer-initiated actions, eliminating discretionary case selection by tax officers. Separate artificial intelligence-enabled risk engines for income tax and sales tax will continuously assess compliance risks and guide enforcement actions.
The reform package has been structured around the OECD’s Tax Administration 3.0 framework, which promotes data-driven, digital, and taxpayer centric tax administration. Under the proposed model, all taxpayer information will be linked through digital identities using CNIC and NTN records, while registration processes will increasingly be automated through transaction-based triggers generated by the Central Data Hub.
Other key components of the framework include digital invoicing, integration of digital payments, pre populated tax returns, taxpayer self service portals, behavioral nudges through SMS, email, and WhatsApp, and physical city offices operated by the Field Operations Wing for in person services.
The Central Data Hub will function as the single authoritative source of taxpayer information, while dedicated risk engines will continuously apply analytics to identify compliance risks. The Directorate of Risk Management at FBR, supported by PRAL’s technical teams, will manage tax rules and analytical models. An artificial intelligence quality review system will also assess all draft audit reports before finalization.
Officials said the model will require specialized training for officers assigned to each wing, legislative amendments to formally establish the new structure, officer protection mechanisms, and performance monitoring through IRIS dashboards. The transition will follow a phased approach based on institutional readiness and technology deployment milestones.
