A.   BACKGROUND (BG)

1.   This refers to the related Important QCs in trail, blue, italic and double line (a) DNVC dated 24.8.21 KTBA urges FBR to secure data centre from hacking - TNS (b) FRQC274 of 9.8.25 about Cyber Attack disrupted Pakistan Petroleum’s IT Systems for ransom & KC Recommendation (c) COQC648 of 29.5.25 about SECP Cyber Security Advisory & KCR 

2.   We also refer to several Other matters including (a) FRQC214 of 22.4.24 about Pak Suzuki Data Leakage and KCR (b) FRQC195 of 24.2.24 about Cyber Threats surge by 17% in 2023; Be careful

B.   EXECUTIVE SUMMARY

As per Details in para C infra, PM Sharif has ordered the abolition of PRAL within six months, the nation's tax data storeroom, in a challenging move that may create more problems than providing any urgent solution due to its backbone status in the tax system This is primarily owing to the fact that systems could not be upgraded due to divided responsibilities and authority between FBR and PRAL.

PM further instructed that a new organisation should be composed of top-notch professionals, should have full functional and financial autonomy. He ordered that the new body must serve as the pivot for FBR's digital transformation and provide world-class, end-to-end user experience for both the FBR and taxpayers.

KC Recommendations: Due to hacking issue as per BG & PRAL closer to be on refer side, we recommend to download all your Entity & Your records from PRAL/IRIS including but not limited  to the following and keep in year-wise folders:

(a) Tax Return Income & Withholding Tax Statements (of Other taxes withheld)

(b) Federal Tax Return (including Others Tax withheld)

(c) FED Tax Return (including Others Tax withheld)

(d) Islamabad Capital Territory Tax

(e) MIS Reports as your Entity withholding Tax

(f) Department Notices, Adjustment request & allowed, your Entity & your Replies (including Attachments) & Department Orders

(g) Appeals filed to CIT Appeal, Hearing Notice, CIT Appeals Orders

(h) Relevant 4 Provincial Sales Tax information

C.   DETAILS

Further to KQU 3501 of 8.8.25, being an important matter, we would inform you about PM orders PRAL closure in 6 months (Attachment 3235.1) in the ensuing paragraph, with emphasis in bold & Underline for quick reading.

2.   Prime Minister Mr Shehbaz Sharif (PM) has ordered the abolition of PRAL within six months, the nation's tax data storeroom, in a challenging move that may create more problems than providing any urgent solution due to its backbone status in the tax system.

3.   Government officials told The Express Tribune that the premier issued instructions last month that PRAL should be scrapped and replaced with a new and modern organisation. PRAL had been established over three decades ago as a private limited company, fully owned by the FBR.

4.   Taxpayers file their returns and pay their taxes through the PRAL system, which also serves as the depository of all tax transactions. However, the existing hardware and software have become outdated, raising concerns about the sustainability of services. The government had also taken a foreign loan in 2019 to upgrade technology systems, but all deadlines have since lapsed.

5.   The government has been attempting to modernise the FBR's information technology infrastructure, set up new data centres, and implement an automated income tax refund system with the help of a $400 million World Bank loan. Out of the $400 million, $80 million was earmarked for technology upgradation.

6.   However, the systems could not be upgraded due to divided responsibilities and authority, according to sources. Two FBR wings, Reforms and Information Technology, were looking after affairs, diluting both authority and responsibility.

7.   PM further instructed that a new organisation should be composed of top-notch professionals and should have full functional and financial autonomy. He ordered that the new body must serve as the pivot for FBR's digital transformation and provide world-class, end-to-end user experience for both the FBR and taxpayers.

8.   However, it will be challenging for the government to establish a whole new organisation by December this year to seamlessly take over PRAL's responsibilities without disrupting tax-related functions. This is especially difficult given that authorities failed to hire a chief information security officer for PRAL despite multiple attempts.

9.   PM Shehbaz Sharif had earlier appointed a "top-notch board of PRAL" to reform the entity. But the decision to abolish PRAL shows even the board could not make a difference. Sources said the decision was taken in a meeting where PRAL board members were present.

10.   The Express Tribune had asked the FBR spokesperson on July 23 whether the PRAL board recommended abolishing or restructuring the organisation. No response had been received after two weeks.

11.   The PRAL management has long warned that delays in upgrading the FBR's IT infrastructure under the World Bank loan could severely compromise the reliability of its data centres.

12.   Sources said PM Sharif had instructed that PRAL's new data centres be inaugurated soon. The FBR had targeted August 14 for the launch, but the servers are not yet ready, and there is a possibility the PM may not be able to inaugurate fully equipped centres on Independence Day.

13.   The FBR operates three key data centres located in FBR House and the Software Technology Park in Islamabad, and Customs House in Karachi. The last significant investment in data centre infrastructure was made in 2010. Since then, the infrastructure has become outdated.

14.   The new data centres are designed to enhance application performance without impacting response times, said sources. These facilities are the backbone of the FBR's technology infrastructure and are crucial for managing and processing large volumes of data. They support essential functions such as tax collection, data analysis, and reporting.

15.   On Tuesday, the prime minister held a routine meeting on FBR affairs, where officials told him that compromises with the business community had set back tax enforcement, according to sources.

16.   After vowing to go after wealthy under-taxed individuals by banning their major purchases and disallowing treatment of cash deposits as banking transactions, the government has now backed off.

17.   The FBR has since modified its position on cash expenses, stating that "when a person, whether a national tax number holder or otherwise, deposits the cash against invoices in the bank account of the seller, the payment shall be treated as having taken place through banking channel and no disallowance of the expenditure will be made in this regard under this clause."

18.   This explanation through subordinates suggests a significant change in the FBR's earlier stance.

19.   It has also decided not to immediately ban purchases of cars, homes, plots, and investment in stocks by ineligible persons. Authorities said this was a major setback and takes the FBR and government back to square one in their dealings with traders. Sources added that this can undermine revenue collection through enforcement measures, as had been promised to the IMF.

D.   FURTHER DETAILS & SERVICES

Should you require any clarification or explanations in respect of the above or otherwise, or require Income Tax, Federal & Provincial Sales Tax or Withholding Tax Statement, Advisory, Return Filing or Review services, please feel free to email Mr Amsal at amsal@kasbati.co with CC to info.kasbati@professional-excellence.com, asif.s.kasbati@professional-excellence.com.

Best regards for Here & Hereafter
Asif S Kasbati (FCA, FCMA & LLB)

Managing Partner 

Kasbati & Co (1400+ Tax, Levies, Companies, Economy, Inflation, HR, Banking, Finance, etc

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