FBR’s Reward & Rating System Faces Controversy and Legal Challenges

The Federal Board of Revenue (FBR)’s newly introduced Reward & Rating System (RRS), replacing the Performance Evaluation Report (PER) system, has ignited significant controversy among Pakistan Customs and Inland Revenue Services (IRS) officers, with allegations of discrimination and favoritism—raising critical tax compliance risks for businesses. Our tax law firm advises clients to monitor this legal quagmire, as it may impact FBR audits and tax assessments.

Per Business Recorder, the RRS, based on peer assessments, has drawn backlash for allegedly favoring select officers, with some rejecting financial rewards—like a customs officer declining a Category “B” award (three extra salaries) due to implied inefficiency and compromised integrity. A Supreme Court advocate’s complaint labels the reward structure—offering up to 24 salaries for Grade “A” officers, down to none for Grade “E”, with a Peshawar Chief Collector allegedly receiving Rs 4.7 million—as an illegal misuse of taxpayer funds, potentially violating Section 9 of the National Accountability Ordinance 1999. Critics highlight peer bias and the anomaly committee’s manual adjustments as threats to objectivity, sparking calls for an independent audit.

From a tax law perspective, this controversy could disrupt FBR enforcement, affecting sales tax compliance at 17% under the Sales Tax Act, 1990, and income tax assessments under the Income Tax Ordinance. Businesses may face FBR scrutiny on deductions (e.g., Section 29) if officer performance impacts audit fairness, while reward payouts could trigger disallowances if deemed non-compliant. Web context reveals FBR’s digitised Performance Management System (PMS) aims for transparency but faces fairness concerns, per posts on X reflecting officer discontent.

Critically, the narrative of “improved evaluation” may mask systemic flaws—web sources note legal challenges over FBR authority under Section 20 of the FBR Act, suggesting potential legal invalidation or policy reversals. Clients should anticipate audit risks amid this unsettled framework.

Our firm advises clients to review tax filings, ensure compliance, and prepare for FBR audits, navigating this controversial tax landscape.