FBR to outsource audits of high-net-worth individuals and firms to detect tax evasion

The Federal Board of Revenue (FBR) has announced plans to outsource the audits of high-net-worth individuals and companies to identify tax evaders and increase revenue collection. The move comes as part of a larger strategy to address a significant tax gap in the country’s economy.

According to a news report, the FBR aims to hire audit firms with a combined workforce of 4,000 professional auditors to carry out audits. These auditors will scrutinise the income and assets of wealthy individuals and companies. 

However, the cost of such a large-scale operation could run into billions of rupees, and no specific budget has yet been allocated by the government for this initiative.

The FBR has noted significant financial activity in property, vehicle purchases, and banking transactions, but its current workforce of 500 auditors is insufficient to manage the growing audit demands. 

To address this, the FBR plans to invite Expressions of Interest from payroll firms with the capacity to provide the necessary audit services. The initial contract will last for one year, with the option for further extensions based on performance.

FBR Chairman Rashid Mahmood Langrial is expected to brief Prime Minister Shehbaz Sharif in the coming days, outlining how changes in tax laws, digitisation, and enhanced enforcement could unlock an additional Rs7.1 trillion in tax revenue.

Current tax data shows that of the 5.5 million Income Tax and General Sales Tax (GST) filers, just 8% (or 45,000 individuals) contribute 92% of the total tax revenue. This highlights a disproportionate burden on a small portion of the population, while a vast majority of filers are under-reporting or filing nil returns.

As part of the new enforcement measures, the FBR plans to use data from the National Database and Registration Authority (Nadra) and Artificial Intelligence (AI) to identify under-filers. Written notices will be issued to those flagged for incomplete or inaccurate tax filings.

Among the salaried class, 0.6 million individuals listed themselves as below the taxable income threshold, while 1.3 million salaried taxpayers contributed Rs251.4 billion in income tax in the fiscal year 2023-24. Notably, 15,000 salaried individuals earning over Rs10 million annually paid Rs93 billion in taxes.

In terms of sales tax, 24,000 individuals filed returns, but only 5,043 manufacturers paid Rs745 billion in taxes last year. Meanwhile, out of 80,000 registered companies, nearly 60,000 reported nil income, and only 6,000 declared an annual income of more than Rs10 million. These companies contributed Rs150 billion in taxes.