FTO Orders FBR to Fix IRIS System After Taxpayer Denied Legal Tax Credit

The Federal Tax Ombudsman (FTO) has ruled that the Federal Board of Revenue (FBR) cannot deny taxpayers their legal rights because of technical issues in its IRIS online tax filing system. The ombudsman said software limitations cannot be used as an excuse when the law clearly allows a taxpayer to claim a tax benefit.

The decision came after a director of a private limited company filed a complaint against the FBR. The taxpayer had invested in an Approved Pension Fund, making him eligible for a tax credit under Section 63 of the Income Tax Ordinance, 2001.

FTO Orders FBR to Fix IRIS System After Taxpayer Denied Legal Tax Credit

However, while filing his income tax return for Tax Year 2025, the taxpayer found that the IRIS portal did not allow him to claim the tax credit because of a system limitation. To avoid penalties for late payment or incorrect filing, he deposited Rs. 217,188 in taxes even though he believed he was entitled to the credit.

The problem became more complicated because the IRIS system also failed to include a surcharge imposed under Section 4AB of the Income Tax Ordinance. The FBR should have included this surcharge in the tax credit calculation under Section 63 for taxable incomes exceeding Rs 10 million. Since the software did not automatically account for this surcharge, the taxpayer could not receive the full benefit allowed under the law.

To resolve the issue, the taxpayer obtained approval from the Commissioner of Inland Revenue under Section 114(6)(ba) to file a revised tax return. The approval legally allowed him to update his return and claim the missing tax credit.

Despite receiving official approval, the taxpayer was still unable to revise his return because the IRIS portal continued to block the claim.

After reviewing the case, the Federal Tax Ombudsman found that there was no disagreement over the taxpayer’s eligibility for the tax credit or the Commissioner’s approval for the revised return. The only obstacle was the inability of the IRIS software to process the claim.

The FTO stated that the FBR has a responsibility to provide a properly functioning online system that supports taxpayers in exercising their legal rights. It said the department cannot rely on technical shortcomings in its own software to deny benefits that are clearly provided under tax laws.

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According to the ruling, forcing taxpayers to pay extra taxes, enter lengthy legal disputes, or face unnecessary penalties because of software problems reflects poor administration and delays in service delivery. The ombudsman also noted that the failure to update the IRIS system in line with legal requirements, along with the lack of action from FBR headquarters, amounted to maladministration under the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

As part of its decision, the FTO directed the Director General IT and Digital Transformation at the FBR to immediately coordinate with Pakistan Revenue Automation Limited (PRAL), the organization responsible for maintaining the IRIS system. The ombudsman instructed the authorities to remove the technical glitches and enable the taxpayer to revise his Tax Year 2025 return with the admissible tax credit under Section 63.

The ruling highlights the importance of reliable digital tax systems and reinforces that taxpayers should not lose their legal rights because of technical failures. It also sends a clear message that government technology platforms must support, rather than prevent, the proper implementation of tax laws.