The proposed FBR framework would use automated systems to identify factual and legal issues in tax returns and give taxpayers an opportunity to respond before further action.

The Federal Board of Revenue (FBR) has proposed a new automated system using artificial intelligence and electronic scrutiny to identify errors and discrepancies in individual income tax returns before any legal or penal action is taken.

The proposed mechanism is part of draft amendments to the Income Tax Rules, 2002, titled “Procedure for electronic scrutiny and intimation of issues detected by the automated system.” The rules are expected to be finalised after stakeholders are given three days to submit feedback.

Under the proposed framework, the FBR will electronically examine information submitted in tax returns and cross-check taxpayers’ declarations against other data available to tax authorities.

The automated system will flag potential factual or legal inconsistencies and notify taxpayers through the IRIS portal. The notification will specify the issues detected and provide taxpayers with an opportunity to explain the discrepancy or correct their declarations through the prescribed procedure.

The FBR has clarified that the identification of a discrepancy by the automated system will not, by itself, trigger enforcement or penal proceedings.

Taxpayers will initially be given at least seven days to respond to an electronic notice. They can either provide an explanation for the flagged issue or make the necessary correction to their tax return.

If no response is submitted within the specified period, the system will issue a reminder. The taxpayer will then receive another period of at least seven days to respond.

Once a taxpayer submits an explanation, the relevant Inland Revenue officer will review the response and determine whether further action is warranted under the Income Tax Ordinance and related rules.

The proposed rules would introduce an additional automated scrutiny stage into the income tax return process, allowing potential errors and inconsistencies to be identified electronically at an early stage.

However, the final decision on whether a flagged discrepancy requires legal or penal action would remain with the concerned Inland Revenue officer. This means the automated system would primarily serve as a screening and notification mechanism rather than independently determining enforcement measures.