ISLMABAD: A policy paper released by the Prime Institute has highlighted serious administrative challenges faced by taxpayers who filed their income tax returns manually, mainly due to limited digital literacy or lack of access to technology. The think tank warned that despite complying with legal requirements, thousands of such taxpayers have been denied their “Active Taxpayer” status by the Federal Board of Revenue (FBR), raising concerns about fairness, institutional coordination, and trust in the tax system.
According to the Prime Institute’s findings, the FBR has blocked the active taxpayer status of manual income tax filers for the tax year 2024, even though these returns were submitted within the officially extended deadline of November 30, 2025. The report points out that this action directly contradicts FBR Circular No. 6 for tax year 2025–26, which explicitly recognizes the legal validity of manual tax filings and provides guidelines for their acceptance.
The think tank noted that FBR field offices have ignored both the circular and directives issued by the Federal Tax Ombudsman (FTO), effectively sidelining compliant taxpayers. This has resulted in lawful filers being treated as non-filers, exposing them to higher withholding taxes and restrictions on financial transactions.
The issue has emerged during Pakistan’s broader push toward digitalisation of the tax system. As part of this effort, the FBR signed an agreement with Karandaaz to digitise tax administration and improve compliance. Under this initiative, the FBR launched IRIS 3.0, a digital tax platform designed to simplify return filing through automation, real-time data integration, and the use of artificial intelligence.
While IRIS 3.0 aims to enhance efficiency, transparency, and reduce discretionary powers at the field office level, the transition has exposed structural gaps. Taxpayers who rely on manual filing due to genuine constraints are facing significant hurdles, including delays, status blockages, and lack of institutional support.
The government attempted to bridge this gap through Circular No. 6, which not only extended the filing deadline but also instructed tax offices to provide free legal and technical assistance to manual filers. However, the Prime Institute observed that these measures have not been implemented on the ground, pointing to institutional inertia and unchecked discretionary actions by field offices.
The report warned that penalising compliant taxpayers undermines voluntary tax compliance and erodes public trust in state institutions. Instead of facilitating lawful compliance, the current approach risks discouraging participation in the formal tax system.
The Prime Institute has urged the government and the FBR to immediately recognise all valid manual filings and restore active taxpayer status without discretionary penalties. It recommended strengthening tax facilitation desks, improving real-time verification systems, and ensuring that digital reforms do not marginalise manual taxpayers. According to the paper, digital integration must be inclusive to ensure a fair and effective tax system for all citizens.
