Key Takeaways
- The Federal Board of Revenue (FBR) has proposed new rules for electronic scrutiny of tax returns using artificial intelligence.
- The system will automatically analyze and cross-match information to identify potential discrepancies, giving taxpayers time to rectify errors.
- Taxpayers will receive online advice or advance intimation of issues detected, with a response period of at least seven days.
The Federal Board of Revenue (FBR) has introduced new rules for the electronic scrutiny of tax returns, utilizing artificial intelligence to detect factual and legal mistakes. These rules, titled '38-B Procedure for electronic scrutiny and intimation of issues detected by the automated system,' are proposed through amendments to the Income Tax Rules 2002.
The automated system will compare information declared in income tax returns with other available data, flagging potential discrepancies for clarification by taxpayers. This process aims to allow taxpayers to rectify errors or take corrective action before legal or penal proceedings are initiated.
Under the proposed mechanism, taxpayers will first be informed electronically about discrepancies detected in their income tax returns and given an opportunity to clarify or rectify them through a prescribed mechanism. The system-generated advance intimation identifying discrepancies may also be sent by the officer of Inland Revenue having jurisdiction over the taxpayer.
The intimation will specify a response period of at least seven days during which the taxpayer can clarify or rectify the discrepancy. If the taxpayer fails to respond within the stipulated period, another reminder will be issued, providing a further period of at least seven days to respond.
The officer of Inland Revenue having jurisdiction over the taxpayer will analyze the taxpayer’s response, or the absence of a response, before taking appropriate action under the relevant provisions of the Income Tax Ordinance and rules. The system will not initiate enforcement action based solely on the detection of a discrepancy.
The proposed arrangement effectively introduces an automated scrutiny layer immediately after processing income tax returns, while retaining the role of the tax officer in determining whether a discrepancy warrants action under the law. This system is designed to streamline the process and ensure accuracy in tax returns.
The draft rules will be finalised after three days, following feedback from stakeholders. The FBR aims to enhance the efficiency and accuracy of tax scrutiny through this innovative approach.
