The Federal Board of Revenue (FBR) has expanded the deployment of artificial intelligence (AI) to scrutinise individual income tax returns, enabling its automated system to detect factual and legal errors prior to initiating formal legal or penal action.

The new framework was notified via SRO 2098 of 2026, introducing Rule 38B to the Income Tax Rules 2002. Under this mechanism, taxpayers will receive automated advance intimations or advisories via IRIS detailing any flagged discrepancies.

Key procedural highlights include:

• Notice Period: Taxpayers are given a minimum of 7 days to clarify or rectify identified discrepancies.
• Reminder Mechanism: If no response is received, an automated reminder grants an additional 7 days.
• Cross-Matching: The AI system performs automated cross-matching of tax return declarations against external data available with tax authorities.

Investor Takeaway: The introduction of AI-driven pre-scrutiny aims to streamline tax compliance and lower arbitrary disputes by giving taxpayers an opportunity to correct errors electronically before formal enforcement proceedings begin under the Income Tax Ordinance 2001.