Amid growing pressure to go after tax evaders, banks seemed to have toughened their stance and again refused to give online access to its central database that contains details of its accountholders to tax authorities.
The banks’ stance is a violation of the Income Tax Ordinance, 2001 that binds them to share details of their accountholders with the Federal Board of Revenue (FBR).
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Last-week’s meeting between FBR and Pakistan Banks’ Association (PBA) - the representative body of the banking industry - remained inconclusive, said officials.
They said that instead the PBA demanded from the federal government to abolish the legal clause that authorises access to customers’ accounts. Banks showed the inability to give access due to security concerns. The PBA does not trust the FBR, said an official who spoke on the condition of anonymity.
The PBA reiterated its earlier stance that it was ready to give access to only those accounts that are at a level of Rs5 million or over, provided the FBR deletes the clause that authorises it to get online access, said the officials.
They added that during the meeting Haroon Akhtar Khan, special assistant to Prime Minister on revenue, pushed the PBA to mend its ways. He is said to have told the association that the government may use the window of the State Bank of Pakistan if the banks refused to comply.
However, the banks did not budge from their position.
After coming into power, the PML-N government had introduced section 165-A in the Income Tax law that gave authority to the FBR to seek access to the central databases of the banks. However, the banks never gave such access and instead got stay orders from the courts against this clause.
After Panama leaks, there is growing pressure on authorities to move against tax evaders and money launderers. The FBR has long been relying on an extremely narrow base to generate additional revenue every year.
According to section 165-A of the Income Tax Ordinance, banks are bound to give online access to its central database containing details of its account holders and all transactions made in their accounts. They are also required to furnish a list containing particulars of deposits of Rs1 million during the preceding month and a copy of each currency transactions report and suspicious transactions report submitted to the Financial Monitoring Unit under the Anti-Money Laundering Act, 2010.
The PBA was of the view that in presence of section 176 there was no need of section 165-A.
Section 176 allows the FBR to obtain information in the case of suspected tax evasion by any particular person. The PBA is also of the view that the respective laws, including Banking Companies Ordinance 1962 and the Protection of Economic Reforms Act, 1991 contain banking secrecy provisions.
The Banking Companies Ordinance and Protection of Economic Reforms Act are special laws that cannot be amended through the Money Bill, opined Dr Ikram ul Haq, a leading tax expert and lawyer of the Supreme Court of Pakistan.
Dr Haq, however, said that giving access to only Rs5 million plus accounts would not serve the purpose, as those who desire to cheat the system would open more than one bank account.
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The PBA is of the view that section 165-A will discourage financial inclusion, which is a high priority for the government and central banks.
The Tax Reforms Commission has also recommended the government to make the process of getting information from the banks efficient and appropriate changes in other laws should also be made after following due process to address stakeholders concerns. It has proposed to introduce Secrecy Act to boost the confidence of people.
In a meeting of the Tax Reforms Implementation Committee, also held last week, the FBR did not immediately accept the TRC proposal.
Published in The Express Tribune, April 26th, 2016.
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