Karachi, July 21, 2024 – The Federal Board of Revenue (FBR) has adopted artificial intelligence (AI) as a pivotal tool to detect non-compliance in the country’s tax system, according to official sources.
This move is part of the federal government’s broader strategy to digitize all processes at the FBR across various tax streams, aiming to minimize human contact while ensuring efficiency and transparency.
The integration of AI into the digital processes is expected to significantly enhance the FBR’s ability to identify non-compliance, thereby expanding the tax base. The FBR has engaged an international consulting firm to implement a two-pronged strategy, focusing on both immediate gains and a medium to long-term agenda. Several initiatives are currently underway:
1. Synchronized Withholding Administration and Payment System (SWAPS): An API is being developed to ensure simultaneous payments to vendors and the FBR, allowing real-time verification of Advanced Tax Liability (ATL) status.
2. Point of Sales (PoS): Over 9,000 Tier-1 Retailers with 29,459 PoS machines have been integrated with the FBR’s portal. This integration allows seamless auto-population of data in Sales Tax Returns, simplifying the compliance process. The PoS system is also being implemented on the income tax side for the services sector.
3. Track and Trace System (TTS): TTS has been deployed in the tobacco, sugar, fertilizer, and cement sectors. This system tracks the movement of products throughout the supply chain, ensuring transparency and accountability in these key industries.
4. Digital Invoicing: Launched in November 2023, the digital invoicing initiative aims to integrate supply chains from imports and manufacturing to the final consumer. This initiative will facilitate the auto-population of tax returns, reducing the burden on businesses and improving accuracy.
These initiatives are part of a comprehensive digitization drive aimed at leveraging the latest technology to facilitate taxpayers and enhance the efficiency of the taxation system. New areas are continually being identified for fast-track implementation.
Compliance Risk Management
The federal government plans to ensure compliance with tax laws through a comprehensive compliance risk management system. This system will encompass controls and procedures for managing risks in taxpayers’ records related to registration, filing of returns and statements, accurate reporting, and on-time payment of taxes and duties. This will be achieved through extensive use of data analytics and machine learning algorithms.
Enhancing Outreach of Tax Machinery
A key priority for the government is to broaden and deepen the tax base. To this end, 140 District Tax Offices (DTOs) have been established at the district level by the FBR to trace and register new taxpayers.
Retail and Real Estate Sector Taxation
The government is aiming to bring the retail sector into the tax net with a scheme for retailers set to launch in FY25. Additionally, the taxation of the real estate sector is being revamped through a combination of policy and administrative measures.
Enhancing Cost of Non-Compliance
The government is committed to strengthening the enforcement mechanism by curbing smuggling and tax evasion. The cost of non-compliance is being increased with substantially higher tax rates for non-filers.
Horizontal Equity in Taxation
To provide a level playing field for various businesses and sectors, the government is eliminating distortions, exemptions, and special treatments for certain taxpayers.
In summary, the FBR’s integration of AI into its processes represents a significant step towards modernizing Pakistan’s tax system. By leveraging advanced technology, the FBR aims to improve compliance, enhance transparency, and ultimately increase revenue collection. The government’s commitment to digitization and risk management underscores its dedication to creating a more efficient and fair taxation environment.