The Federal Board of Revenue (FBR) has introduced a significant policy shift through the Finance Bill 2020, proposing the automated scrutiny of all income tax returns, which may signal the end of the Universal Self-Assessment Scheme (USAS) in Pakistan.
Under the new proposal, the FBR will scrutinize all income tax returns automatically, contrasting sharply with the current USAS, where all returns filed by taxpayers are accepted without initial scrutiny by the tax authority. The USAS, established under the Income Tax Ordinance of 2001, allowed taxpayers to file returns that were deemed final unless selected for audit based on predefined parameters.
Tax experts explain that under the existing USAS, when a taxpayer submits an income return, it is automatically treated as an assessment of taxable income and tax due, equal to the amounts specified in the return. These returns are accepted as assessment orders issued by the Commissioner of Inland Revenue.
“Under the USAS, all taxpayers qualify for self-assessment automatically. The returns they file are considered final unless their cases are selected for audit based on pre-announced audit parameters,” explained a senior FBR officer.
However, Deloitte Yousuf Adil Chartered Accountants noted that under the proposed new mechanism, each return will undergo automatic review and adjustment within six months of filing. This process aims to rectify any numerical errors, incorrect claims, losses, deductible allowances, tax credits, or wrongful carry-forward of losses apparent from the return of income.
Taxpayers will receive a notice before any adjustments are made, to which they must respond within 30 days. If no adjustments are made within the specified six-month period, the return will be deemed automatically adjusted on the day it was filed. An automatic intimation through the Integrated Risk Information System (IRIS) will then be forwarded to the taxpayer.
The existing provisions regarding deemed assessment orders will now apply to the adjusted return rather than the original return filed by the taxpayer. This shift aims to enhance the accuracy and integrity of the tax assessment process, ensuring that only legitimate claims are accepted and reducing the potential for tax evasion and fraud.
The introduction of automated scrutiny marks a major transformation in Pakistan’s tax administration. By moving away from the USAS, the FBR seeks to create a more robust and transparent tax system that minimizes human error and increases compliance. However, the success of this new approach will depend on its implementation and the taxpayers’ adaptation to the new automated scrutiny process.
