Turning tax data into taxpayers

September 01, 2026 (MLN): For decades, Pakistan’s narrow tax base was commonly attributed to the state’s inability to see large parts of the economy. Business transactions were conducted predominantly in cash, ownership records remained fragmented and government institutions rarely exchanged information.

Tax authorities could pursue persons already registered, but identifying economically active persons outside the system was considerably more difficult.

That position has changed significantly.

Over successive years, Pakistan has enacted an extensive legal framework for collecting tax-relevant information.

FBR has also invested in digitised returns, electronic statements, integrated monitoring and data analytics. Income tax returns, wealth statements, withholding statements, sales tax returns, customs declarations, banking transactions, property records, vehicle registrations, utility consumption, international travel and digitally ordered transactions now provide a much wider view of economic activity.

These developments represent meaningful progress in tax administration. The next opportunity is to integrate the information more systematically and convert it into accurate taxpayer identification, appropriate registration and sustained compliance.

Information already within the tax system

The Income Tax Ordinance, 2001 [the Ordinance], demonstrates the scale of information potentially available. Sections 114 and 116 of the Ordinance require returns of income and, where applicable, wealth statements containing information regarding income, assets, liabilities, expenditures and reconciliation of wealth. These declarations enable FBR to construct an economic profile of persons already within the system.

Information is not limited to what taxpayers report in their own returns. Section 165 of the Ordinance requires persons deducting or collecting tax to file withholding statements. These statements generally identify the recipient, the nature and amount of the payment, the tax deducted or collected and the person’s CNIC or NTN.

Considering the breadth of Pakistan’s withholding regime, these statements provide information regarding salaries, supplies, services, contracts, imports, exports, rent, property transactions, profit on debt, dividends, cash withdrawals and several other forms of economic activity. In many instances, a documented person making a payment effectively reports the income or transaction of another person to FBR.

The Tenth Schedule increases this visibility. Persons not appearing on the Active Taxpayers List are generally subjected to enhanced rates of deduction or collection under specified withholding provisions.

When withholding agents report these transactions under section 165 of the Ordinance, FBR receives identifiable information regarding non-ATL persons conducting potentially significant economic activities.

An enhanced deduction does not establish that the person necessarily has taxable income. It does, however, provide a valuable starting point for determining whether that person should be registered, required to file a return or examined further.

The withholding regime has therefore created a substantial potential-taxpayer database. While its immediate purpose is to secure collection, the same information could be used more systematically to convert economically active non-ATL persons into regular taxpayers.

Information generated through sales tax returns

The sales tax system produces another detailed transactional trail. Sections 22 to 24 of the Sales Tax Act, 1990 [the Act], require prescribed records and tax invoices to be maintained and retained, while section 26 of the Act requires registered persons to file periodic sales tax returns.

The returns and their annexures contain invoice-level information regarding purchases and supplies, including the registration status and identifying particulars of suppliers and customers wherever prescribed.

FBR therefore possesses information not only about registered manufacturers, importers and traders, but potentially also about persons buying repeatedly from the registered sector without obtaining registration.

Where an unregistered buyer purchases substantial quantities from several registered manufacturers or distributors, the combined information may indicate a wholesaler, retailer or other business operating outside the sales tax system.

Section 3(1A) of the Act, which provides for further tax on prescribed taxable supplies made to persons who have not obtained registration, creates another identifiable category of transactions involving unregistered persons. Such information can support a structured process for determining whether recipients are conducting businesses that independently require registration.

Purchase and sales annexures can also be compared across the supply chain. Purchases declared by one registered person should ordinarily correspond with sales reported by another.

Differences may reflect timing or genuine reporting issues, but repeated and material inconsistencies can assist in identifying suppressed turnover, questionable invoices or unregistered intermediaries.

A person may therefore be invisible in his own filings but visible in the filings of several others. An unregistered wholesaler may appear as a buyer in the sales tax returns of multiple manufacturers.

A service provider may appear in the withholding statements of several companies. A landlord may be identified through deductions from rent. A contractor may be reported by multiple withholding agents.

The information may exist even where the person has never voluntarily approached FBR.

Banking and financial information

Banking information is available through several statutory channels. Section 165A of the Ordinance requires banking companies to provide prescribed information, including particulars relating to significant cash withdrawals, deposits, credit-card payments, profit on debt and business accounts opened or redesignated during the relevant period.

The framework has recently become more technology-oriented. Section 165AB of the Ordinance, introduced through the Finance Act 2026, requires banking companies and electronic money institutions to upload prescribed financial-transaction information to a Central Data Hub for algorithmic cross-matching with tax information. It presently covers account holders whose deposits or withdrawals exceed the prescribed threshold during a reporting period.

Section 175AA of the Ordinance separately provides for cross-matching tax declarations of high-risk persons with banking information through data-based algorithms. It also contemplates a secure centralised repository of banking data maintained by the State Bank of Pakistan.

Information regarding offshore financial accounts is available under section 165B of the Ordinance. Financial institutions, including banks, are required to furnish information concerning non-resident and other reportable persons for automatic exchange under bilateral agreements and multilateral conventions.

This operates alongside the Common Reporting Standard framework prescribed through the Income Tax Rules, 2002.

These provisions demonstrate that the legal framework has progressed beyond requesting isolated banking information towards systematic comparison of financial activity with tax declarations.

Digital commerce and platform information

The expansion of digital commerce has created additional information channels. Section 165C of the Ordinance requires payment intermediaries and courier services responsible for withholding tax on digitally ordered goods and services to file quarterly statements containing details of sellers, transactions and tax deducted.

Online marketplaces must provide monthly information concerning vendors registered on their platforms, including registration particulars, turnover and amounts deposited into their bank accounts.

This creates a trail connecting the seller, platform, payment and delivery of digitally ordered transactions.

When such information is matched with returns, bank accounts and sales tax registrations, it can help distinguish occasional personal transactions from sustained commercial activity.

Identity, assets, travel and utilities

One of the broadest information provisions is section 175A of the Ordinance. It requires arrangements for real-time access by FBR to information and databases maintained by several institutions.

The provision covers identity information held by NADRA; international travel and immigration records maintained by the relevant agencies; land and property records maintained by provincial, local and development authorities; motor-vehicle registration and transfer records; and particulars of electricity and gas consumers, including consumption and billing information.

Section 175B of the Ordinance gives NADRA a more direct role in broadening the tax base. NADRA may share information with FBR, identify income, receipts, assets, properties, liabilities, expenditures and transactions that may have escaped assessment, and use artificial intelligence or statistical modelling to compute indicative income and tax liability.

The Sales Tax Act contains a corresponding framework. Section 56A of the Act permits the exchange of sales tax information between the federal government, provincial governments and foreign jurisdictions, while section 56AB of the Act provides for real-time access to identity, travel, property, vehicle and utility databases.

Section 40C of the Act authorises electronic monitoring and tracking of production, sales, clearances, stocks and related activities through tax stamps, barcodes, production monitoring, video analytics and other prescribed mechanisms.

Section 73 of the Act creates a further financial trail by generally requiring payments above the prescribed threshold to be made through specified banking instruments for input tax purposes.

Customs and trade information

Customs declarations provide extensive information regarding imports, exports, descriptions and quantities of goods, declared values, origin, ownership and associated payments. This information can indicate the scale and nature of a person’s commercial activity.

When customs data is matched with income tax returns, sales tax declarations, withholding statements and banking activity, it can help identify inconsistencies between imports, local sales, turnover and declared income.

Pakistan therefore does not face a general absence of statutory powers or sources of information.

FBR can potentially see income declarations, wealth, payments, purchases, supplies, banking activity, property, vehicles, utilities, travel, imports, production and digitally ordered transactions.

From information to intelligence

The next challenge is to bring these streams together into a reliable economic profile.

This is not a simple exercise. Data may be stored in different systems and formats. Records may contain inconsistent names, incomplete CNIC or NTN details, shared utility connections, joint ownership, nominee arrangements and transactions conducted through accounts bearing different titles. Federal and provincial databases may also use different classifications.

Accordingly, the quality of matching is as important as the quantity of information collected. Investment in data cleansing, common identifiers, interoperable systems and analytical capacity can significantly improve the reliability of taxpayer profiles.

A further distinction must be maintained between information and evidence.

A bank deposit is not necessarily taxable income. It may represent business turnover rather than profit, a loan, an inheritance, a gift, a transfer between accounts or proceeds from the disposal of an asset.

Likewise, the acquisition of property or a vehicle may indicate economic capacity without conclusively establishing concealed income.

The law provides mechanisms for resolving such discrepancies. Section 176 of the Ordinance authorises the Commissioner to require any person to furnish information relevant to tax liability.

Section 177 provides for audit, section 122 governs amendment of assessments and section 111 may apply where investments, money, expenditures or amounts credited remain unexplained.

These provisions require the information to be examined, the taxpayer’s explanation to be considered and the legal conditions for taxation to be satisfied. Data should therefore initiate an inquiry rather than predetermine its conclusion.

A structured conversion process

A more effective data-led system could begin by consolidating information through CNIC or NTN. It should then distinguish transactions already disclosed in returns from those showing a material inconsistency. Cases could be prioritised according to the reliability of the information, size of the apparent discrepancy, estimated revenue potential and compliance history.

A person identified through transactional or third-party information could initially receive a clear digital statement showing the information available with FBR and the apparent discrepancy.

The person should be given an opportunity to correct attribution errors, explain the source of funds, register or update the relevant declaration. Formal proceedings should follow where a material difference remains unresolved.

This would improve case selection, reduce unnecessary correspondence and allow FBR’s field formations to focus their limited resources on significant matters capable of producing sustainable revenue.

Measuring genuine base broadening

FBR reported that 5.9 million income tax returns had been filed by 31 October 2025, compared with five million by the corresponding date a year earlier. That growth represents encouraging progress. However, the longer-term measure of broadening is how many new filers declare taxable income, how much tax they pay and whether they remain compliant in subsequent years.

Alongside filing statistics, FBR could publish an annual data-conversion report showing the number of potential taxpayers identified through different information sources, cases removed because of inaccurate matching, new returns filed, taxable income declared, tax collected and taxpayers retained over later years.

Such reporting would demonstrate the value generated by investments in digitalisation and help identify which information sources, whether withholding statements, sales tax returns, banking data, property records, customs declarations or digital platforms, are producing the strongest base-broadening outcomes.

Taxpayer protection should remain part of this framework. Sections 175A, 175AA and 165B of the Ordinance recognise that information should be used for tax-related purposes and kept confidential, while section 216 of the Ordinance generally protects taxpayer information against unauthorised disclosure. As FBR accumulates increasingly sensitive data, cybersecurity, controlled access and accountability for misuse become essential.

Artificial intelligence can identify patterns and inconsistencies, but it cannot replace legal reasoning or due process. An algorithm may show that declared income appears inconsistent with banking activity, property ownership or expenditure. The character and taxability of a transaction must still be determined under the law.

Pakistan has already developed much of the statutory and technological foundation required for data-led tax administration. The next phase is to build upon that progress by connecting existing information streams, improving identity matching, strengthening analytical capacity and applying the results through fair legal processes.

Data can identify potential taxpayers. Effective administration can convert them into continuing taxpayers. If Pakistan completes that conversion successfully, its growing information architecture can support a broader, fairer and more sustainable tax base.

 About Author:

Muzammil Hemani is a tax and corporate advisory professional with extensive experience in direct and indirect taxation, corporate structuring, and regulatory compliance.

He regularly advises businesses on tax planning, documentation, and compliance strategy, with a focus on aligning practical business needs with evolving legal and fiscal frameworks in Pakistan.

He also contributes to professional forums and knowledge-sharing platforms on taxation, public finance, and emerging regulatory developments.

Disclaimer:

The above analysis/article is for informational and educational purposes only.

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