The Federal Board of Revenue (FBR) is once again being reinvented! The proposed transformation plan envisages a three-wing structure separating audit, assessment and enforcement functions. It promises faceless audits, centralised risk management, algorithmic case selection, re-audit powers, artificial intelligence and extensive use of third-party data.

The stated objective is to modernise tax administration, reduce discretion and improve compliance. The reform is being portrayed as a technological breakthrough. It may instead expose a deeper problem: Pakistan is attempting to digitise tax enforcement before digitising the economy itself.

This is not the first time that the FBR has embarked upon a supposedly transformative journey. During the last quarter century, Pakistan has witnessed a succession of reform initiatives. Large Taxpayer Units, Regional Tax Offices, Inland Revenue integration, the Tax Administration Reform Project, the Universal Self-Assessment Scheme, Track-and-Trace Systems, Point-of-Sale integration, digital filing platforms and repeated organisational restructuring have each been presented as solutions to the country's chronic revenue problem. Yet the fundamental indicators remain stubbornly unchanged.

Pakistan’s tax-to-GDP ratio remains low compared to its potential. The informal economy continues to thrive. Tax litigation has multiplied. Trust between taxpayers and tax administrators has deteriorated. The overwhelming reliance on withholding taxes persists.

The number of active income tax return filers remains disproportionately small in relation to the size of the economy. The reason is simple. Most reform efforts have focused on tax administration rather than the structure of the economy itself.

The current transformation plan appears to repeat the same mistake. The dominant assumption behind faceless audits and algorithmic enforcement is that the principal challenge confronting the FBR is the efficient analysis of available information. The real challenge, however, is that a substantial part of Pakistan’s economy generates little or no reliable information in the first place.

An algorithm can analyse data. It cannot analyse transactions that are never recorded. A faceless audit can scrutinise electronic trails. It cannot effectively examine economic activity conducted entirely through cash and informal arrangements. Technology magnifies visibility. It does not create visibility where none exists.

This distinction is crucial because Pakistan remains a predominantly cash-based economy. Large segments of wholesale and retail trade continue to operate outside effective documentation frameworks. Property transactions are frequently under-declared.

Property records, utility records, withholding tax data and commercial information often suffer from inaccuracies, duplication and inconsistent reporting standards

Property records, utility records, withholding tax data and commercial information often suffer from inaccuracies, duplication and inconsistent reporting standards

Agricultural income remains largely outside meaningful tax administration. Federal and provincial databases remain fragmented. Digital payment penetration remains limited compared to successful tax jurisdictions.

Against this background, the proposal to........

© The Friday Times