The Federal Board of Revenue (FBR) holds wide-ranging powers under the Income Tax Ordinance, 2001 to safeguard revenue and address tax evasion. One such important mechanism is the provisional tax assessment, which allows tax authorities to assess income in specific high-risk situations even before a final assessment is issued.
What Is a Provisional Tax Assessment?
A provisional assessment is a temporary tax assessment issued by the Commissioner of Inland Revenue when undisclosed or concealed assets are identified. This assessment is issued before a regular assessment under Section 121 or an amended assessment under Section 122 of the Income Tax Ordinance, 2001.
When Can FBR Issue a Provisional Assessment?
Under Section 123, a provisional assessment may be issued in the following cases:
1. Concealed Assets
If any concealed asset of a taxpayer is impounded by:
• A Federal Government department, or
• A Provincial Government department or agency
the Commissioner may issue a provisional assessment for the last completed tax year, taking into account the value of the concealed asset.
2. Undeclared Offshore Assets
If an offshore asset, not previously declared by the taxpayer, is discovered by:
• The FBR, or
• Any federal or provincial department
the Commissioner may issue a provisional or provisional amended assessment based on the newly discovered offshore asset.
How Quickly Is the Provisional Assessment Finalized?
According to Section 123(2), the Commissioner is required to finalize the provisional assessment as soon as practicable, ensuring the process does not remain open-ended.
What Is a “Concealed Asset”?
The law defines a concealed asset as:
Any property or asset which, in the opinion of the Commissioner, was acquired from income chargeable to tax under the Income Tax Ordinance, 2001.
Why This Matters for Taxpayers
• Provisional assessments allow the FBR to secure tax revenue immediately
• They act as a deterrent against tax evasion
• Taxpayers may face significant liabilities if assets are found undisclosed
• Offshore and benami assets are increasingly under scrutiny
Key Takeaway
With enhanced data sharing and enforcement, provisional tax assessments are becoming more common. Taxpayers are advised to ensure full disclosure of assets, both local and offshore, to avoid penalties, provisional assessments, and potential legal action.
Staying compliant today can prevent costly tax disputes tomorrow.
Disclaimer: This article is for informational and educational purposes only and does not constitute legal, tax, or financial advice. Readers should consult a qualified tax professional or the Federal Board of Revenue (FBR) for guidance specific to their situation. The author and publisher are not responsible for any actions taken based on the content of this article.