Banking secrecy

Banking secrecy has all along been a hot topic in the history of financial industry and it is somewhat unusual that the Group of 20, commonly know as G20, has taken a particular note of this at the Washington meetings. Urging the global adoption of standards for sharing bank account information to fight tax evasion and curtail banking secrecy, G20 has strongly encouraged all countries to sign on to a commitment to the automatic exchange of banking information.
Recognising some progress on the issue, it also welcomed the initiatives towards automatic exchange of information so far and urged all jurisdictions to move to this goal with their treaty partners, as appropriate. However, the consensus was that more needs to be done to address the issues of international tax avoidance, in particular through tax havens, as well as non-co-operative jurisdictions. The statement urged all countries to accept the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which was a framework for the sharing of banking data.
The consensus on banking secrecy in G20 where all the major economic powers of the world are represented is, in our view, a good beginning. Relying on banking secrecy for funds' inflow for a variety of purposes, some of the countries were earlier very reluctant to share banking information with other countries. The truth of the matter is that arguments both for and against banking secrecy are very strong and it is difficult to convince certain countries to adopt the route as suggested by the G20. However, certain progress on the matter is welcome and with the passage of time, more openness is likely to be achieved. Although Pakistan is not a member of the G20 yet it should be pleased with the rate of progress on the matter and the reason for this is obvious. Some of the Pakistanis have stashed away foreign exchange due to political uncertainty in the country, rapid depreciation of the rupee, tax avoidance and a number of other reasons. If G20 could push its members and some of the tax havens for openness, Pakistanis sending their money abroad in their or benami accounts would think many times and probably would be pushed to declare their income and assets more honestly. Such a move would improve tax collections, reduce pressure on the balance of payments, accelerate development, reduce poverty and increase employment in the country. Also, one of the greatest policy failures of Pakistan has been the existence of a large sized informal economy. The initiative of G20 could also to a certain extent reduce its size by limiting its options to operate freely within and outside the borders of the country.
Pakistanis hold money abroad more as insurance against uncertainty prevailing in the country. A more comprehensive debate is needed of giving direct access of banking transactions to the FBR. Under the current law, FBR gets withholding tax deduction of clients from banks. FBR wants this deduction detail - account-wise instead of branch wise- banks, however, hide behind the banking secrecy law and are afraid that they could lose deposits if this happens. SBP favours the banks as it wants to halt dollaroisation and obtain a rise in rupee deposits. Successive governments, due to Pakistan's weak forex reserves, have resisted doing away with protection provided to foreign currency receipts, if done through banking channel and amount is converted into rupees. Therefore, Pakistan's ground reality is different from G20 countries. Delicate balance is needed between what is desirable and what is needed to remain livable.