FBR Moves to Use AI for Automated Scrutiny of Tax Returns
The proposed framework, titled “38-B Procedure for electronic scrutiny and intimation of issues detected by the automated system,” has been introduced through amendments to the Income Tax Rules, 2002.
FBR proposes an automated AI system to scrutinise income tax returns and flag discrepancies
ISLAMABAD: The Federal Board of Revenue (FBR) has moved to expand the use of artificial intelligence (AI) to scrutinise individual income tax returns and identify factual and legal mistakes before taxpayers face legal or penal action.
The proposed framework, titled “38-B Procedure for electronic scrutiny and intimation of issues detected by the automated system,” has been introduced through amendments to the Income Tax Rules, 2002.
The draft rules will be finalised after a three-day period for stakeholder feedback.
Automated System to Flag Tax Discrepancies
Under the proposed mechanism, the FBR’s automated system will analyse and cross-match information available to tax authorities.
It will compare information declared in income tax returns with other available data. The system will then flag potential discrepancies, factual mistakes and possible legal issues for taxpayers to review.
The FBR will send an online advice or advance intimation through the IRIS portal. The notice will identify the issues detected during automated scrutiny.
The mechanism is designed to give taxpayers an opportunity to explain discrepancies, correct errors or take other corrective measures before the authorities initiate legal or penal proceedings.
However, the detection of a discrepancy by the automated system will not, by itself, trigger enforcement action.
Taxpayers to Get Time to Respond
Under the proposed rules, taxpayers will receive an electronic intimation outlining discrepancies found in their returns.
They will be given at least seven days to submit a clarification or rectify the identified issue through the prescribed procedure.
If a taxpayer does not respond within the specified period, the system will issue a reminder. The taxpayer will then receive an additional period of at least seven days to respond.
The advance intimation may also be issued by the relevant Inland Revenue officer having jurisdiction over the taxpayer.
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Tax Officers to Review Responses
The relevant Inland Revenue officer will examine the taxpayer’s response before deciding whether further action is required.
The officer will also review cases where taxpayers do not respond within the prescribed period.
Any subsequent action will be taken under the applicable provisions of the Income Tax Ordinance and relevant rules.
The proposed framework would add an automated scrutiny layer immediately after the processing of income tax returns.
At the same time, the tax officer will retain responsibility for determining whether a flagged discrepancy requires action under the law.
