Finding new taxpayers: FBR wins access to banks’ database
LHC allows tax authorities to scrutinise details of account holders .
ISLAMABAD:
The Lahore High Court (LHC) has set aside an interim order and allowed the Federal Board of Revenue (FBR) access to the database of commercial banks, removing one of the two hurdles that have so far kept bank deposits worth trillions of rupees out of the reach of tax authorities.
Last year, the court had suspended implementation of Section 165A of the Income Tax Ordinance after four commercial banks filed a complaint. The federal government had amended the income tax law through Finance Bill 2013 aimed at getting access to bank accounts to trace tax evasion.
However, the FBR could not implement the relevant clause after the banks brought the issue to the attention of the LHC and Sindh High Court. The SHC has not yet vacated the stay order.
Govt’s regulation
Through Section 165A, the government amended the Banking Companies Ordinance 1962, Protection of Economic Reforms Act 1992, Foreign Exchange Regulation Act 1947 and regulations made under the State Bank of Pakistan Act 1956.
The section binds banks to report any kind of suspicious transactions to the FBR. There is a statutory obligation on banks to give online access to its central database containing details of account holders and all transactions made in their accounts to the FBR.
Under the same clause, the banks are bound to provide details of deposits aggregating Rs1 million or more during the preceding month. Banks are also required to provide a list of payments made by any person against the bills raised in respect of a credit card issued to that person, aggregating Rs100,000 a month.
Furthermore, a consolidated list of loans written-off, exceeding Rs1 million during a calendar year, has also to be provided to the FBR.
FBR’s predicament
Forced by its wealthy clients, the banks approached the LHC and sought stay orders, said sources in the banking industry. Unlike in western countries, the banks in Pakistan are generally unwilling to cooperate with the tax authorities to trace the tax evaders.
The FBR wants to use this particular clause to unearth underreporting of assets and income by the taxpayers besides netting those who remain outside the tax ambit.
The combined value of deposits of top three private commercial banks is Rs2.6 trillion. A private commercial bank has achieved the landmark of having deposits of over Rs1 trillion.
Pakistan has one of the lowest tax-to-gross domestic product ratios and only 0.43% of the population files income tax returns. In India, this ratio is over 4.5%.
As the last date for filing income tax returns for companies is December 31, so far 822,000 individuals and companies have filed income tax returns, which is even less than the combined figure of 890,000 for the previous fiscal year, according to FBR officials.
The FBR is also struggling to achieve this year’s tax collection target and has collected only Rs1.066 trillion. It needs to hit the ceiling of Rs1.195 trillion by December 31 with five days remaining before the close of the month. The indicative ceiling has been imposed by the International Monetary Fund for the first time.
The SHC has also suspended the implementation of 5% tax on bonus shares, levied through this year’s budget. The measure was taken to bring under the tax net as much as Rs1.5 trillion worth of income from bonus shares, which shareholders receive from the companies.
The total value of bonus shares paid by the companies in Pakistan last year amounted to Rs1.5 trillion.
The Supreme Court of Pakistan has directed the SHC either to give a judgment in the bonus share case or the interim order will be considered vacated by January 15.
Published in The Express Tribune, December 27th, 2014.
The Lahore High Court (LHC) has set aside an interim order and allowed the Federal Board of Revenue (FBR) access to the database of commercial banks, removing one of the two hurdles that have so far kept bank deposits worth trillions of rupees out of the reach of tax authorities.
Last year, the court had suspended implementation of Section 165A of the Income Tax Ordinance after four commercial banks filed a complaint. The federal government had amended the income tax law through Finance Bill 2013 aimed at getting access to bank accounts to trace tax evasion.
However, the FBR could not implement the relevant clause after the banks brought the issue to the attention of the LHC and Sindh High Court. The SHC has not yet vacated the stay order.
Govt’s regulation
Through Section 165A, the government amended the Banking Companies Ordinance 1962, Protection of Economic Reforms Act 1992, Foreign Exchange Regulation Act 1947 and regulations made under the State Bank of Pakistan Act 1956.
The section binds banks to report any kind of suspicious transactions to the FBR. There is a statutory obligation on banks to give online access to its central database containing details of account holders and all transactions made in their accounts to the FBR.
Under the same clause, the banks are bound to provide details of deposits aggregating Rs1 million or more during the preceding month. Banks are also required to provide a list of payments made by any person against the bills raised in respect of a credit card issued to that person, aggregating Rs100,000 a month.
Furthermore, a consolidated list of loans written-off, exceeding Rs1 million during a calendar year, has also to be provided to the FBR.
FBR’s predicament
Forced by its wealthy clients, the banks approached the LHC and sought stay orders, said sources in the banking industry. Unlike in western countries, the banks in Pakistan are generally unwilling to cooperate with the tax authorities to trace the tax evaders.
The FBR wants to use this particular clause to unearth underreporting of assets and income by the taxpayers besides netting those who remain outside the tax ambit.
The combined value of deposits of top three private commercial banks is Rs2.6 trillion. A private commercial bank has achieved the landmark of having deposits of over Rs1 trillion.
Pakistan has one of the lowest tax-to-gross domestic product ratios and only 0.43% of the population files income tax returns. In India, this ratio is over 4.5%.
As the last date for filing income tax returns for companies is December 31, so far 822,000 individuals and companies have filed income tax returns, which is even less than the combined figure of 890,000 for the previous fiscal year, according to FBR officials.
The FBR is also struggling to achieve this year’s tax collection target and has collected only Rs1.066 trillion. It needs to hit the ceiling of Rs1.195 trillion by December 31 with five days remaining before the close of the month. The indicative ceiling has been imposed by the International Monetary Fund for the first time.
The SHC has also suspended the implementation of 5% tax on bonus shares, levied through this year’s budget. The measure was taken to bring under the tax net as much as Rs1.5 trillion worth of income from bonus shares, which shareholders receive from the companies.
The total value of bonus shares paid by the companies in Pakistan last year amounted to Rs1.5 trillion.
The Supreme Court of Pakistan has directed the SHC either to give a judgment in the bonus share case or the interim order will be considered vacated by January 15.
Published in The Express Tribune, December 27th, 2014.