Amended law introduces virtual audit proceedings, voluntary tax settlement incentives and stronger enforcement powers
ISLAMABAD: The Federal Board of Revenue (FBR) has expanded its authority to conduct electronic audits and strengthen enforcement against federal excise duty evasion under the updated Federal Excise Act, 2005, amended up to June 30, 2026.
The revised legislation authorises Inland Revenue officers to audit registered persons after issuing advance written notice, while also allowing the Commissioner to initiate audits at any time during the year if there is credible information or evidence suggesting fraud or evasion of federal excise duty.
FBR authorised to conduct electronic audits
A key amendment empowers the Commissioner to conduct electronic audit proceedings through video links or any other digital facility prescribed by the FBR.
Following the completion of an audit, the Inland Revenue officer must obtain the taxpayer’s explanation for all audit observations before issuing a formal audit report containing the findings.
Where necessary, the officer may subsequently determine the amount of federal excise duty payable, along with any applicable default surcharge, penalties and recovery of refunds that were wrongly claimed or issued, after providing the taxpayer with an opportunity to present their case.
Incentives for voluntary tax compliance
The updated law also introduces relief measures for taxpayers who voluntarily disclose unpaid or short-paid federal excise duty.
Under the revised provisions:
Before an audit begins: Taxpayers who voluntarily pay the outstanding duty along with the applicable default surcharge will not face any penalty. During or after an audit but before a show-cause notice: Taxpayers may settle their liability by paying the outstanding duty, default surcharge and 25% of the prescribed penalty.
After a show-cause notice is issued: The liability can be settled by paying the outstanding duty, default surcharge and 50% of the prescribed penalty, after which further proceedings will be discontinued.
The amendments are intended to encourage voluntary compliance while reducing lengthy litigation.
Commissioner empowered to order re-audits
The amended Federal Excise Act also authorises the Commissioner, with prior approval of the Chief Commissioner, to require a registered person to undergo a re-audit of accounts or a revaluation of inventory where additional scrutiny is considered necessary.
Such directions may be issued where authorities believe:
The accounts are unusually complex.
The volume of transactions is exceptionally high.
There are doubts regarding the accuracy of financial records.
The business involves specialised operations.
The interests of revenue require further examination.
In such cases, taxpayers may be directed to obtain:
A re-audit conducted by a qualified accountant.
An inventory revaluation carried out by a qualified cost accountant.
The reports must address specific issues raised by Inland Revenue authorities and be duly signed and verified by the appointed professionals.
Strengthening digital tax administration
The latest amendments form part of the FBR’s broader efforts to modernise tax administration through digital procedures, improve audit transparency and strengthen enforcement under the Federal Excise Act.
Officials expect the introduction of FBR electronic audits, combined with incentives for voluntary compliance and enhanced audit powers, to improve revenue collection, reduce tax evasion and make the audit process more efficient for both taxpayers and tax authorities.