Federal Board of Revenue (FBR) Chairman Shafqat Mahmood Langrial has warned taxpayers and tax consultants that the traditional methods of underreporting income and exploiting gaps in the tax system are becoming ineffective as the regulator has deployed artificial intelligence (AI), third-party data and a faceless assessment system this year.
Speaking about the changing tax environment recently, Langrial said the knowledge tax consultants traditionally possessed about how the FBR operates could become redundant this year.
He said tax consultants previously considered not only a taxpayer’s actual tax liability but also the likelihood that the FBR would detect any misreporting.
Langrial said consultants knew that FBR had limited capacity to examine every return and would therefore assess the probability of being caught before advising clients.
He said this created a situation where a taxpayer with an actual liability of Rs. 50 could potentially be advised to report a much lower amount because the chances of detection were considered low.
However, the situation has now changed significantly with the introduction of AI and improvements in FBR’s ability to analyze tax returns.
FBR now has the capacity to see each return, he said, adding that the regulator also has access to third-party data that can be used to identify discrepancies.
Langrial said FBR previously had substantial data within its systems, but could not effectively analyze it.
FBR chairman also mentioned the implementation of a stronger and faceless tax system to remove another avenue taxpayers previously relied on.
He said taxpayers could no longer expect personal relationships with FBR officials or their associates to help resolve issues arising from tax assessments.
Langrial urged taxpayers to have a “heart-to-heart conversation” with their tax consultants before filing their returns. He also advised consultants to use their knowledge of tax law and help clients comply with their obligations, but avoid relying on their past experience of exploiting weaknesses in FBR’s enforcement system.
He warned that taxpayers could face unpleasant surprises if they continued using old methods of reducing reported tax liabilities.
Langrial specifically referred to the September 30 tax return deadline and told taxpayers to ensure their filings are accurate before submission. He noted that some taxpayers may have later filing arrangements extending into December.
The FBR chief said the objective was not to create unnecessary difficulties for taxpayers but to ensure that the new technology-driven system was properly understood.
He added that FBR’s enhanced analytical capacity, AI tools, third-party information and move toward faceless operations are fundamentally changing the risks associated with tax misreporting.
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