Finance Minister Muhammad Aurangzeb on Sunday informed the Senate Standing Committee on Finance the proposed National Faceless System will remove the discretionary powers of Inland Revenue officials, ending collusion and corrupt practices in the tax system.
Addressing the committee during a review of the Finance Bill, 2026, he said the new system called for the creation of Directorate General (Field Compliance), Inland Revenue to tackle digital non-compliance in the field formations. He advocated minimal human intervention, noting agents and advisers even in private sectors had played a role in collusion under the existing tax system.
Federal Board of Revenue (FBR) Member (Strategic Transformation) Hamid Ateeq Sarwar also expressed full confidence in the proposed National Faceless System, noting it aimed to remove officials from cement and sugar factories after production monitoring, digital eye and other digital initiatives.
According to Sarwar, the new system curtails the powers of tax officials and separates the audit and adjudication functions to avoid resting all powers with a single field officer. To avoid collusion, he said, auditors would be barred from assessing the same taxpayer, while any final order would be issued by a third official. He claimed this would reduce chances of corruption by at least 75%, adding the proposed system would automatically assign taxpayers’ cases through algorithms to field officers.
The new system, according to the disclosures, calls for audits of Karachi-based taxpayers to be conducted by officials stationed at Lahore, while Lahore-based taxpayers may be assigned an official from Karachi.
During the briefing, Senator Sherry Rehman questioned the practicality of the proposal, especially in light of connectivity challenges. Senator Talha Mahmood, meanwhile, questioned how the system operated currently. The finance minister said the government’s ultimate aim was to reduce excessive human intervention while maintaining effective oversight.
The FBR official maintained the new system would effectively deal with the enforcement functions of 500 Inland Revenue officials in the field formations. Aurangzeb said 5G services would boost connectivity, adding the system did not call for the elimination of human involvement, but rather its curtailment.
After the briefing, the committee approved the proposal for the establishment of the National Faceless Center.
Key risks
Also on Sunday, the finance ministry submitted a written statement to Parliament on seven key fiscal risks to the outlook for the upcoming fiscal year’s budget.
According to the ministry, a potential rise in global prices may result in a contraction of petroleum levy receipts and an increase in energy-related subsidies. “A likely decision to waive full price pass-through to domestic consumers would result in a decline in petroleum levy receipts,” it said, noting the government would have to raise subsidies to protect domestic consumers, particularly low-income households. According to Aurangzeb, a significant part of the more than Rs. 1.035 trillion in special grants secured from the provinces had been set aside for anticipated impacts of the Iran war.
Additionally, the ministry noted macroeconomic risks mainly arise from a slowdown in economic activity, which could lead to weaker-than-expected real GDP growth and affect the fiscal stance. It said a 1% decline in real GDP growth could lower government revenues through reduced tax collections, while also increasing expenditure pressures, particularly on social safety nets.
“The combined impact is estimated to widen the fiscal deficit by around 0.2% of GDP in FY2026-27,” it said, adding this would place pressure on inflation and the exchange rate, further straining public finances.
The submission noted that revenue collection remains exposed to lower tax elasticity, an economic slowdown, shortfalls in non-tax receipts, and structural challenges in reducing the tax gap. If tax revenue grows 10% lower than budget estimates, it could result in a reduction of 0.7% of GDP, it said.
Revenue risks could also result from a 30% decline in State Bank of Pakistan surplus profits, which could increase the deficit by 0.3% of GDP.
Similarly, a 20% shortfall in petroleum levy collection could add 0.2% of GDP. Further, tax expenditures remain a structural risk; expanded exemptions and concessions could widen the fiscal deficit by 1.3% of GDP.
A key listed vulnerability was debt servicing costs due to exposure to interest rate changes, exchange rate movement, and refinancing pressures. The ministry said a 200-basis-point rise in domestic interest rates and a 100-basis-point rise in external rates could widen the deficit by 0.4% of GDP. If the government is forced to resort to short-term instruments in this scenario, the deficit could increase by up to 0.8% of GDP.
The ministry said state-owned entities pose risks through lower dividend payments and higher government support, noting a 6% shortfall in dividends could widen the deficit by 0.02% of the GDP. However, if financial support reaches 1.5% of GDP, it could increase the deficit by 0.4% of GDP.
On climate change, the ministry said a mitigation pathway aligned with RCP 2.6 could raise spending on green infrastructure and adaptation, increasing the deficit by 0.2% of GDP. However, under a high-emission RCP 8.5 scenario, the near-term impact is limited at 0.01% of GDP in FY2027, though risks could rise over time due to more frequent shocks.
Natural disasters remain one of the largest risks, with an average event potentially increasing the fiscal deficit to 1.5% of GDP. The ministry also noted that guarantees issued for commodity financing operations expose the government to vulnerabilities. Assuming a 25% probability of guarantees’ actualization, the deficit could increase by 0.1% of GDP.