Page 44 - CMA Journal (July-August 2025)

Focus Section

Moreover, big data analytics from telecom providers, real in big data analytics and trained human capital have
estate transactions, and utility consumption data can fill constrained the advancement of AI technologies and
gaps in income tax filing information (Bird & Zolt, 2018). machine learning for tax administration.
Tax authorities can also access and verify the level of risk Taxpayers also have serious concerns about
in taxpayer profiles through e-commerce transaction cybersecurity and data protection. These concerns can
sources such as mobile phone payments, receipts, and only be addressed if sufficient measures are taken
social media earnings. Big data analytics is the only way through laws on data protection and an ethical
to shift from reactive analytics to proactive analytics. In governance framework. Taxpayers are of the view that
this way, tax authorities can conduct real-time audits legal safeguards, governance reforms, and capacity
and inspections. building are the most effective measures for ensuring
cybersecurity and data protection.
According to the International Monetary Fund (2022),
data sharing between tax authorities and third Challenges in Data-Driven Tax Reform
parties—such as utility companies, real estate, and
mobile transactions—has meaningfully improved in While data-driven taxation holds significant promise, its
India and Brazil. If Pakistan wants to increase compliance, implementation in countries like Pakistan is fraught with
reduce tax evasion, and expand the tax base, it must use systemic and structural challenges. A major issue is data
legal, institutional, and technological sources of data to fragmentation, where relevant information is dispersed
ensure secure and effective integration. across disconnected agencies, creating obstacles for
integrated analysis and enforcement (Jenkins, 2017).
Applications of Data in Tax Reform Poor data quality, including outdated or incomplete
records, further undermines the reliability of analytics.
Data-driven tax systems enable tax authorities to
improve compliance, reduce evasion, and maximize Legal and regulatory constraints also hinder progress.
resource utilization. Risk-based auditing is the most The absence of comprehensive data-sharing laws and a
effective application of a data-driven tax system. This lack of clarity on taxpayer privacy protection raise ethical
application can detect high-risk taxpayers, enhance audit and operational concerns. Weak institutional capacity—
efficiency, and provide predictive analytics that reduce especially in areas of data governance, analytics
the tax department’s workload (Khwaja, Awasthi & expertise, and IT infrastructure—limits the effective use
Loeprick, 2011). If the authorities aim to expand of emerging technologies such as AI and machine
transparency and reduce manual errors, they must learning (IMF, 2022).
encourage taxpayers to use e-invoicing and provide tax
information through e-filing. Furthermore, resistance from vested interests, low
political commitment, and low digital literacy among
To better understand taxpayer behavior and taxpayers slow down tax reforms. In the absence of the
compliance strategies, tax authorities should adopt above-mentioned initiatives, the economy will continue
taxpayer segmentation and profiling applications. to underperform in tax revenue.
Another key application, anomaly detection, can
uncover hidden income or earnings generated through To address these challenges, a comprehensive and broad
fraudulent activities. approach is required, including public awareness, capacity
building, institutional collaboration, and legal reform, in
If Pakistan wants to improve tax equity and revenue
order to gain the full benefits of data-driven tax reforms.
mobilization, it must adopt such applications through
platforms like utility companies, NADRA, IRIS, etc. Policy Recommendations
Institutional Readiness and It is time to realize the potential of data-driven tax reforms.
Technological Infrastructure The next step must be adopting a multi-stakeholder
strategy that strengthens institutions and technological
The effective incorporation of data in tax reform largely capacity. A multipronged strategy should begin with
depends on organizational capacity and digital enacting governance laws related to inter-agency data
infrastructure. In Pakistan, the first mover initiative is the sharing while ensuring taxpayer privacy protection (World
Integrated Revenue Information System (IRIS), with Bank, 2020). Alongside the enactment of comprehensive
NADRA Information System as the only major integrated data governance laws, there is also a dire need for
application. However, the system currently functions in investment in digital infrastructure to enable real-time
fragments, with limited coordination and outdated access and big data analytics.
mechanisms (Ahmed & Ahmed, 2021).
It is essential for tax authorities to focus on capacity
It is observed that a major challenge lies among building. This includes establishing risk analysis teams,
institutions such as SECP, PRAs, FBR, and NADRA, well-equipped IT professionals, and trained data
specifically due to the lack of data interoperability. scientists, supported by ongoing training programs to
Moreover, challenges related to insufficient investment embed analytics into daily operations (OECD, 2021).

42 ICMA’s Chartered Management Accountant, Jul-Aug 2025