Reimagining Pakistan's tax administration—I

By For decades, tax reform has remained one of Pakistan's most frequently debated yet least successfully implemented economic priorities. Governments, businesses, international institutions and tax professionals have repeatedly acknowledged that sustainable fiscal stability cannot be achieved without a modern and efficient tax administration. Numerous commissions, reform programmes and policy initiatives have proposed solutions ranging from digitisation and automation to broadening the tax base, strengthening audit capabilities and harmonising federal and provincial taxes. Yet despite these initiatives, the Federal Board of Revenue (FBR) continues to face challenges relating to fragmented responsibilities, overlapping jurisdictions, excessive litigation, limited taxpayer confidence and a persistently narrow tax base. Perhaps the greatest challenge facing Pakistan's tax system today is the erosion of trust between taxpayers and tax authorities. A modern tax system cannot rely solely on enforcement; it must be built upon transparency, predictability, professionalism and fairness. Frequent policy changes, inconsistent interpretations, multiple audits and prolonged litigation have contributed to uncertainty and discouraged voluntary compliance. Any meaningful restructuring of FBR must therefore begin with restoring taxpayer trust while enhancing revenues, improving documentation and supporting economic growth. FBR should become an autonomous institution The first and most critical reform should be the conversion of FBR into an autonomous statutory institution on the model of the State Bank of Pakistan. Tax administration is a specialised function requiring continuity, long-term planning and professional independence. Frequent administrative changes and political interventions can undermine institutional capacity and accountability. An autonomous FBR governed by an independent and professionally constituted board would be better positioned to modernise technology, develop human resources, respond to evolving economic challenges and pursue long-term reform objectives. Parliamentary oversight should continue through annual reporting, performance reviews and independent audits. The objective is not to reduce accountability, but to replace administrative interference with professional governance, merit-based recruitment, transparent promotions and objective performance evaluation. Restructuring customs functions Pakistan Customs currently performs a wide range of functions requiring different skill sets and institutional objectives. These functions should be separated into three streams. The first stream should comprise tariff policy, trade policy, trade negotiations and Free Trade Agreements (FTAs). These functions are linked with trade facilitation, export competitiveness, industrial development and market access and should therefore be transferred to the Ministry of Commerce. Trade and tariff policy should be formulated through a broader economic and commercial lens rather than being driven solely by immediate revenue considerations. The second stream should comprise border security, anti-smuggling operations and customs enforcement. Since these functions are fundamentally linked with national security and border management, they should be integrated with institutions operating under the Ministry of Interior and other relevant security agencies. The third stream should comprise customs valuation, import-export taxation, international information exchange and trade monitoring. These functions should remain linked with tax administration, but operate in close coordination with the State Bank of Pakistan and the banking sector so that customs declarations can be reconciled with foreign-exchange transactions, trade-financing arrangements and banking records. Such integration would improve transparency and reduce revenue leakage. Towards a unified national GST framework Any proposal to carve the sales tax function out of FBR should be approached with considerable caution. Until Pakistan successfully implements a fully integrated Reformed Goods and Services Tax (RGST) framework covering goods and services throughout the country, sales tax should continue to remain within FBR and the Inland Revenue Service (IRS). Inland Revenue has the nationwide administrative infrastructure, taxpayer database, technology systems and specialised workforce needed to administer sales tax. Premature separation would risk creating further fragmentation. The development of an integrated GST framework does not require a change in the constitutional allocation of taxing powers. Provinces can continue to levy and collect sales tax on services within their constitutional mandate, including deciding whether a service should be taxed, exempted or zero-rated under provincial legislation. Pakistan should instead develop a common GST architecture comprising standardised legislative templates, harmonised valuation principles, uniform return formats, common invoicing standards and coordinated compliance mechanisms. The key reform should be technological and administrative integration rather than constitutional restructuring. Taxpayers should be able to register, file a single GST return, pay tax, disclose transactions and claim admissible input adjustments through one online platform covering goods and services. Automated reconciliation, cross-adjustment of input taxes and revenue allocation should occur at the backend between the federation and provinces without imposing multiple compliance obligations on taxpayers. Accordingly, the immediate priority should be implementation of a nationwide RGST framework, not creation of a separate National GST Authority. Only after integration has been achieved and shown to operate effectively should policymakers consider carving sales tax out of FBR. Until then, sales tax should remain within FBR and IRS. Establishment of a national tax audit authority A National Tax Audit Authority should be established under the Securities and Exchange Commission of Pakistan (SECP). Taxpayers presently risk being audited by multiple federal and provincial authorities, resulting in duplication, uncertainty and additional compliance costs. The proposed authority should comprise professional auditors, accountants, economists, data scientists, forensic experts and industry specialists. Federal and provincial tax authorities would continue to identify risks and request audits, but the audit itself should be conducted by this single professional authority. A taxpayer should ordinarily face one coordinated audit rather than multiple overlapping examinations. SECP should simultaneously be tasked with a national programme for corporatisation of major businesses. Significant sole proprietorships and associations of persons should gradually be converted into corporate entities, with the proposed exercise targeted for completion by 30 June 2027 to improve governance, transparency and compliance. Tax policy should be shifted to the Planning Commission The existing Tax Policy Office and broader strategic tax policy function should gradually be carved out from the Ministry of Finance and transferred to the Planning Commission through a phased medium-term and long-term reform process. A recurring concern of domestic and international investors is that tax policy is frequently shaped by annual revenue constraints, resulting in frequent changes, short-term measures and uncertainty. The current policy function is also constrained by limited access to detailed multidisciplinary research and economic data, particularly information relating to provincial subjects, investment, industrial development and sectoral performance. The strategic tax-policy function, the Planning Commission's economic reform work and the investment-policy interface of the Board of Investment, including engagement with international development and investment institutions, should be aligned within one policy division under the Planning Commission. This would align tax policy with medium- and long-term economic reform, investment, export, industrial and documentation objectives. A small policy unit may remain within FBR to deal with day-to-day operational interpretations, clarifications and implementation issues. Strategic policy formulation should, however, remain outside the revenue-collection function. Establishment of a centralised revenue Law Division Tax litigation now requires specialised expertise in constitutional law, commercial law, international taxation, customs law and regulatory matters. Legal functions currently dispersed across FBR should therefore be transferred to the Ministry of Law through a dedicated Revenue Law Division, which should remain separate from FBR until FBR becomes an autonomous institution. The division should recruit, train and develop specialised revenue-law professionals and build separate institutional streams and support resources for: • Commissioner Appeals; • Appellate Tribunal Inland Revenue (ATIR); • Customs Appellate Tribunals; • Alternative Dispute Resolution Committees and other settlement forums; • High Courts and the Supreme Court; and • International tax, treaty, income tax, sales tax, federal excise and customs disputes. Dedicated teams should be developed for preparation and argument of cases before appellate forums and superior courts. This would reduce excessive dependence on private lawyers, improve consistency of legal positions and create a professional career structure for revenue-law specialists. The division should also strengthen Alternative Dispute Resolution (ADR) and restore taxpayer confidence in settlement mechanisms so that more disputes are resolved institutionally rather than through prolonged litigation. Strengthening PRAL as the National Tax Technology Authority Pakistan Revenue Automation Limited (PRAL) should become the backbone of Pakistan's future tax administration architecture. Until FBR becomes autonomous, PRAL should remain institutionally separate from FBR, with its own governance framework, while maintaining close operational coordination. (To be continued tomorrow) Copyright Business Recorder, 2026