Chartered accountants’ body seeks mandatory 48-hour notice and transparent audit selection to protect taxpayer rights.
The Institute of Chartered Accountants of Pakistan (ICAP) has proposed that tax authorities should be required to issue prior notice before entering taxpayers’ business premises for audit and monitoring purposes.
In its budget proposals for 2026-27, ICAP raised concerns regarding Sections 175 and 177 of the Income Tax Ordinance, 2001, which grant extensive powers to officials of the Federal Board of Revenue for inspections and audit selection.
According to ICAP, the discretionary and unstructured use of these powers has created concerns among taxpayers over undue harassment, lack of procedural transparency and inconsistent enforcement practices.
The institute noted that under Section 175, tax authorities may enter and inspect business premises without a clearly defined requirement for advance notice or documented justification. ICAP said the existing provision creates risks of unannounced visits and possible misuse of authority.
Similarly, the institute observed that Section 177 permits audit selection based on the Commissioner’s discretion in addition to computerized selection, leading to perceptions of arbitrary or targeted audits that may undermine voluntary tax compliance.
To address these concerns, ICAP proposed two amendments to the law.
Under Section 175, the institute recommended inserting a proviso requiring tax authorities to serve at least 48 hours prior notice before entering business premises.
However, ICAP proposed an exception where the Commissioner possesses definite and credible information indicating tax fraud or concealment of income.
The proposed clause states: “Provided that this requirement shall not apply in cases where the Commissioner, based on definite and credible information, has reason to believe that tax fraud or concealment of income is being committed.”
Regarding Section 177, ICAP recommended that audit selection should be conducted exclusively through a transparent, computer-generated risk-based system prescribed by the FBR.
The institute also proposed that the criteria and parameters used for audit selection should be documented and made publicly available to the extent consistent with enforcement requirements.
ICAP said the proposed reforms would help balance effective tax enforcement with the protection of taxpayer rights.
According to the institute, mandatory notice requirements would shield legitimate businesses from unnecessary disruption while preserving the authorities’ ability to act in genuine fraud cases.
It added that risk-based audit selection would reduce discretionary practices, improve transparency and fairness, align Pakistan’s tax system with international standards and encourage voluntary compliance.
ICAP also referred to observations made by the Supreme Court of Pakistan, stating that the apex court has consistently emphasized that statutory powers must be exercised reasonably, proportionately and in accordance with due process.
