Federal Board of Revenue has expanded its authority to conduct electronic audits and strengthen enforcement against federal excise duty evasion under the updated Federal Excise Act, 2005, amended up to June 30, 2026. The revised legislation authorizes Inland Revenue officers to audit registered persons after issuing advance written notice, while also allowing the Commissioner to initiate audits at any time during the year if credible information or evidence points to fraud or evasion of federal excise duty. A key amendment empowers the Commissioner to conduct electronic audit proceedings through video links or any other digital facility prescribed by Federal Board of Revenue, marking a shift toward remote audit processes that reduce the need for in person engagement between taxpayers and tax officials.
Following the completion of an audit, the Inland Revenue officer is required to obtain the taxpayer’s explanation for all audit observations before issuing a formal audit report containing the findings. Where necessary, the officer may subsequently determine the amount of federal excise duty payable, along with any applicable default surcharge, penalties, and recovery of refunds that were wrongly claimed or issued, after giving the taxpayer an opportunity to present their case. The updated law also introduces relief measures for taxpayers who voluntarily disclose unpaid or short paid federal excise duty, structured around a tiered penalty system tied to the timing of disclosure. Taxpayers who voluntarily pay outstanding duty along with the applicable default surcharge before an audit begins will face no penalty at all, while those who settle during or after an audit but before a show cause notice is issued can resolve their liability by paying the outstanding duty, default surcharge, and 25 percent of the prescribed penalty. Once a show cause notice has been issued, the liability can still be settled by paying the outstanding duty, default surcharge, and 50 percent of the prescribed penalty, after which further proceedings are discontinued.
The amended Federal Excise Act also authorizes the Commissioner, with prior approval of the Chief Commissioner, to require a registered person to undergo a re-audit of accounts or a revaluation of inventory where additional scrutiny is considered necessary. Such directions may be issued in cases where accounts are deemed unusually complex, transaction volumes are exceptionally high, doubts exist regarding the accuracy of financial records, the business involves specialized operations, or the interests of revenue require further examination. In such cases, taxpayers may be directed to obtain a re-audit conducted by a qualified accountant or an inventory revaluation carried out by a qualified cost accountant, with the resulting reports required to address specific issues raised by Inland Revenue authorities and be duly signed and verified by the appointed professionals.
The latest amendments form part of Federal Board of Revenue’s broader effort to modernize tax administration through digital procedures, improve audit transparency, and strengthen enforcement under the Federal Excise Act. Officials expect the introduction of electronic audits, combined with incentives for voluntary compliance and enhanced audit powers, to improve revenue collection, reduce tax evasion, and make the audit process more efficient for both taxpayers and tax authorities. The changes follow a pattern of digital modernization efforts at Federal Board of Revenue in recent years, including earlier moves toward electronic sales tax invoicing and digital reporting systems aimed at reducing manual intervention and improving the accuracy of tax data across different revenue streams.
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