Under the new arrangement, the FBR has established a National Faceless Centre (NFC) in Islamabad, which will initially focus on reviewing tax-related information of hundreds of thousands of individuals. The initiative is part of the government’s broader effort to modernize tax administration, improve compliance and reduce direct interaction between taxpayers and tax officials.

New System to Monitor High-Value Spending

The first stage of the programmed is expected to begin on October 1, with the NFC initially handling information relating to approximately 300,000 to 400,000 individuals.

The FBR plans to make greater use of third-party information to identify cases that may require further examination. Among the information expected to receive particular attention are records involving:

• Air travel and frequent expensive trips

• Purchases of luxury vehicles

• Ownership or purchase of high-value residential properties

• Other significant expenditures that may appear inconsistent with declared income

The purpose is not necessarily to tax every person who makes an expensive purchase. Instead, such transactions may prompt the tax authorities to ask the individual to explain the source and tax treatment of the funds involved.

Taxpayers Will Have an Opportunity to Explain

If a taxpayer receives a notice, they will be required to provide an explanation or supporting evidence for the expenditure in question.

For example, an individual may be able to demonstrate that a major purchase was financed through accumulated savings, a bank loan, the sale of another asset, inheritance or another legitimate source of funds.

Where the explanation is accepted, the matter may be closed. If the expenditure cannot be adequately explained, the taxpayer may be required to pay the relevant tax and make the necessary changes to their tax return.

The proposed system will also provide digital facilities for completing tax payments.

No Direct Contact With the Tax Officer

One of the most notable features of the new system is the removal of direct interaction between taxpayers and individual tax officers.

Under the traditional system, taxpayers whose returns were selected for audit could find themselves dealing directly with a particular officer at a regional tax office. The new model aims to replace this arrangement with a centralized digital process.

Cases will be selected through a computerized, risk-based mechanism. Once selected, a case will automatically be allocated to an officer, who could be located anywhere in Pakistan.

The taxpayer will not be told which officer is handling the case, while the officer will not have any involvement in selecting the taxpayer for audit.

Three Officers for Three Different Stages

The proposed structure also separates the different stages of an audit.

Instead of allowing one officer to control a case from beginning to end, the process will involve three separate functions:

1. Audit: One officer examines the taxpayer’s information and relevant data.

2. Assessment: A second officer reviews the case and determines the applicable tax position.

3. Quality review: A third officer checks the work before the final order is issued.

According to the FBR, separating these responsibilities is intended to strengthen oversight and reduce the possibility of undue influence during the tax process.

Initial Focus on Individual Taxpayers

During its initial phase, the NFC will concentrate on individual and medium-level cases. Corporate taxpayers and associations of persons are not included in the initial scope of the new arrangement.

The center will initially operate with 27 officers, with third-party information expected to be transferred to it in stages following preliminary compliance checks.

Wider Centralization Planned for 2027

The current initiative is only the first stage of a much larger reform.

A second phase is planned for June 2027, when the FBR intends to bring the audit and assessment functions of regional tax offices under the centralized model.

If implemented as planned, this would represent a major change in the way tax cases are processed across Pakistan.

Rather than taxpayers dealing primarily with their local tax office, cases would increasingly be handled through a nationwide digital structure.

Reducing Harassment and Improving Transparency

The FBR says the faceless approach is intended to reduce unnecessary physical interaction between taxpayers and tax officials. The reform is also designed to address concerns surrounding corruption, undue influence and taxpayer harassment.

Because cases would be selected and assigned electronically, individual officers would have less control over which taxpayers they deal with.

The separation of audit, assessment and review functions is another safeguard intended to create greater oversight within the process.

Pakistan Following an International Trend

Faceless and centralized tax administration is not unique to Pakistan. Similar approaches have been adopted in several countries, including the United Kingdom, Australia, the Netherlands, Singapore and India.

India, in particular, has operated a comparable faceless assessment framework for individual taxpayers since 2019.

Pakistan’s proposed model reflects the broader international movement towards using digital systems, data analytics and automated case allocation to modernize tax administration.

What Taxpayers Should Expect

The new system means that high-value financial activity could receive greater scrutiny when it does not appear consistent with information reported to the tax authorities.

For taxpayers, maintaining proper financial records and documentation will therefore become increasingly important. Evidence relating to major purchases, loans, asset sales, inheritances, investments and other sources of funds can help establish the legitimacy of significant expenditures if questions arise.

The reform also signals a broader shift in Pakistan’s tax system: tax administration is moving away from office-based interactions and towards data-driven digital enforcement.

Conclusion

The establishment of the National Faceless Centre marks an important step in the FBR’s attempt to reshape tax audits in Pakistan. By combining third-party data, computerized case selection, nationwide officer allocation and separate audit and assessment functions, the new model seeks to create a more centralized and technology-driven tax system.

The immediate focus will be on individual taxpayers and high-value expenditure, while the planned 2027 expansion could extend the faceless model across regional tax offices.

For taxpayers, the message is clear: as the FBR increasingly relies on digital information to identify potential discrepancies, accurate tax returns and proper documentation of major financial transactions will become increasingly important.

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Billions in Question

According to the audit, the reported irregularities span several areas of the ministry’s operations. The largest concerns involve over Rs2.1 billion linked to cash collections and funds maintained in unauthorized private bank accounts. Auditors also identified more than Rs508 million in spending that exceeded approved budget allocations, around Rs117 million related to procurement issues and vendor overpayments, and over Rs821 million in questioned expenditures at Pakistan’s foreign missions.

In addition, the audit states that approximately Rs84.6 million may be recoverable through official proceedings.

Budget Overspending Raises Concerns

The report notes that while the ministry’s headquarters finished the fiscal year with modest savings under one budget grant, overseas missions exceeded their approved allocation by more than Rs508 million under another grant. Auditors concluded that this excess spending had not received the required authorization.

Questions Over Apostille Fee Collections

One of the most significant findings relates to the collection of apostille certification fees. Auditors state that the ministry increased service charges for various document categories without obtaining the necessary statutory approval or clearance from the Finance Division.

The report further alleges that courier companies collected nearly Rs956 million in cash from applicants, with the funds reportedly remaining in private bank accounts instead of being deposited promptly into the Federal Treasury. Auditors also questioned two privately held accounts containing over Rs1.14 billion, saying they lacked the required government approval.

Procurement Process Under Review

The audit also highlights concerns regarding procurement procedures. It questions the outsourcing of apostille courier services to private firms without open competitive bidding, including the selection of a newly established company that reportedly lacked a formal business profile and sales tax registration.

Another observation focuses on an Rs86 million agreement awarded to the National Information Technology Board without what auditors describe as a transparent tendering process. The report also raises concerns about a Rs200 per-document transaction fee charged under the arrangement.

Overpayments During International Summit

Auditors examined expenditures related to the 23rd Shanghai Cooperation Organization (SCO) Summit and reported that an events management company claimed more than it was entitled to receive. The report identifies an alleged excess claim of Rs14.47 million and recommends recovering additional unpaid taxes associated with the contract.

Spending at Overseas Missions

Several observations relate to Pakistan’s diplomatic missions abroad. The audit questions millions of dollars spent on health insurance premiums and medical reimbursements without a standardized government-approved policy.

It also highlights expenditures on leased official vehicles at missions in cities including Houston, Los Angeles, Chicago, and Belgrade, arguing that these arrangements conflicted with existing federal restrictions.

Additional findings include litigation expenses incurred by Pakistan’s mission in Geneva in connection with a personal employment dispute, as well as alleged financial losses involving a rental arrangement at the embassy in Havana. Auditors also flagged various payments for medical treatment and educational subsidies across missions in Europe and Asia that they believe require further review.

Weak Internal Controls

Beyond the financial figures, the audit points to broader governance issues within the ministry. It notes that hundreds of audit observations accumulated over several years remain unresolved, with the ministry’s compliance rate standing at only 43 percent.

The report cites missing records, weak financial controls, suspected overpayments, and instances where auditors were unable to verify transactions due to incomplete documentation.

What Happens Next?

The Departmental Accounts Committee has instructed the Ministry of Foreign Affairs to conduct detailed fact-finding inquiries, seek formal approval where expenditures require regularization, and recover public funds wherever financial losses or overpayments are confirmed.

It is important to note that audit observations represent findings that require explanation or further examination. They do not, on their own, establish legal liability or misconduct. The ministry will have an opportunity to respond to the audit, and any subsequent investigations or decisions by oversight authorities will determine the final outcome.

The audit nevertheless highlights the importance of strong financial oversight, transparent procurement, and effective internal controls in managing public resources. As the review process continues, the findings are likely to remain a significant topic of discussion regarding accountability and governance within Pakistan’s public sector.

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According to the Auditor General of Pakistan’s Report 2025-26, billions of rupees remain either uncollected, unrecovered, or improperly accounted for across key institutions. The findings paint a picture of administrative weaknesses that continue to affect the country’s financial health at a time when economic stability remains a top national priority.

One of the most significant observations concerns the Federal Board of Revenue (FBR), where auditors reported an estimated Rs117.8 billion in unrealized super tax revenue. The finding suggests that substantial tax resources that could have supported government spending and development initiatives were not successfully collected.

The report also highlighted financial concerns within the energy sector. Auditors identified recoverable amounts worth around Rs117 billion in the Petroleum Division, while unresolved subsidy-related claims continue to place pressure on public finances. These issues underline the need for stronger oversight and improved financial planning within the sector.

Pakistan’s power distribution companies were another area of concern. Several major electricity distributors reportedly operated without finalized audits or effective internal review systems for multiple years. Such gaps in financial accountability make it difficult to accurately assess performance and identify inefficiencies.

In the telecommunications sector, regulators were criticized for shortcomings in enforcing licensing requirements and addressing unauthorized activities. Auditors stressed the importance of stronger regulatory oversight as the country’s digital economy continues to expand.

Infrastructure and transportation agencies also faced scrutiny. Pakistan Railways was criticized over the continued encroachment of valuable land assets, while the National Highway Authority was found to have weaknesses in revenue collection and expenditure controls. These findings suggest that public assets and revenue streams are not being managed as efficiently as they could be.

The audit report also pointed to serious concerns surrounding major development projects. The Dasu Hydropower Project, one of Pakistan’s largest energy initiatives, has experienced a dramatic increase in costs, far exceeding its original estimates. Meanwhile, the Neelum-Jhelum Hydropower Plant remains out of operation following structural issues, delaying expected energy production and increasing financial burdens.

Social welfare programs were not exempt from criticism. Auditors noted weaknesses in beneficiary verification systems under the Benazir Income Support Programme, which may have resulted in duplicate payments and assistance being provided to individuals who did not qualify for support.

The National Disaster Management Authority (NDMA) also came under the spotlight. The report highlighted accounting discrepancies, unrecorded liabilities, and the absence of a proper inventory system for relief goods worth billions of rupees. Auditors expressed concern that unresolved issues from previous years continue to persist without adequate corrective action.

Perhaps one of the most alarming findings relates to the Pakistan Agricultural Storage and Services Corporation (Passco). The organization has accumulated significant losses over recent years while struggling to recover hundreds of billions of rupees owed for wheat supplies. Auditors warned that continued delays in recovering these funds could further weaken the institution’s financial position and undermine its role in maintaining national food security.

The report also identified billions of rupees in questionable charges billed to the federal government, adding to concerns about transparency and financial discipline within public sector operations.

While audit observations do not automatically establish wrongdoing, they serve as important indicators of areas requiring further investigation and corrective measures. The findings will now be reviewed by the Public Accounts Committee, which is responsible for examining the observations and ensuring accountability where necessary.

The audit report ultimately highlights a broader challenge facing Pakistan’s public sector: the need to strengthen governance, improve financial controls, and ensure that public resources are managed efficiently. Addressing these weaknesses could not only reduce waste and revenue losses but also help restore public confidence in government institutions and improve the country’s overall fiscal outlook.

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