Accessing bank accounts

Federal Board of Revenue (FBR) has again become quite active in seeking probe into the bank accounts of individuals and other entities. According to the latest SRO 115/1/2014 issued by the FBR, every bank will be required to submit to the Board a monthly account holders deposits statement of those who have deposited Rs 1 million or above in a month. The information, however, may not be provided by the banking company in respect of a person who holds the National Tax Number and has also filed return of income for the immediately preceding tax year. The banks shall provide information under section 165A of the Income Tax Ordinance of Account Holders Deposits Statement, Credit Card Payments Statement, Written-off Loans Statement, currency transactions report and suspicious transactions report. Each banking company shall furnish to the Board a monthly Credit Payments Statement regarding information of persons who have made credit card payment of Rs 100,000 or more during a month and every bank would provide an annual Written-off Loans Statement about loans written-off exceeding Rs 1 million or more during a year. The information and online access required to be provided under clause (a) of sub-section (a) of section 165A shall be provided by the reporting company through online access to its central database containing details of its account holders and all transactions made in their accounts.
The FBR is pushing for and seems determined to enforce this measure despite the repeated assertions of the business community that such an action would have a negative impact on the economy and is going to be counterproductive in the long-run. The arguments advanced against such a measure by the FBR are based on experience and also tenable in purely economic terms but nobody seems to listen. The president of Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Zakaria Usman, has warned the government that if it pursues its plan to access bank accounts and that FBR enjoys unbridled powers of free access into bank account data, depositors may opt to withdraw funds from banks and put them somewhere else. This would lead to a repeat of the 1998 scenario when foreign exchange accounts were frozen by the banks. It would also promote black economy and people would be constrained to keep their savings either in gold, bond schemes or cash. This would further weaken the already weak documented economy. In all fairness, such measures would limit scope of business-friendly policies of the government by eroding the confidence of depositors. Abdullah Zaki, president of Karachi Chamber of Commerce and Industry (KCCI) was of the view that the depositors whose accounts information was to be shared with the FBR would prefer to stay away from banks or maintain accounts out of this country, which will result in flight of capital and affect profitability of banks. Giving access to confidential information is tantamount to erosion of banking secrecy and would further aggravate the problems of business community as it was well known that FBR was marred by corruption and unscrupulous elements within the FBR would get a perfect opportunity to exploit account holders for personal gains.
We feel that what the representatives of the business and industry have said on the issue of giving access to the FBR to the bank accounts even with the proviso that such access would be with prior approval of the concerned Chief Commissioner, is fully justified. There is no doubt that the implementation of the measure would lead to some disintermediation of the financial system, flight of capital through informal channels, further widening of the undocumented economy and unnecessary harassment of the account holders by the FBR staff who are usually not known for their honesty and integrity. Exemption of NTN holders from the requirement would hardly provide any solace to the taxpaying account holders. Banks have still not asked their clients about their tax status or national tax numbers to exclude them from reporting requirement and the limit of credit card payment of Rs 100,000 during a month is too low to get an exemption. Anyhow, while the business community is opposing the measure on the ground of its practicalities and certain other negative aspects, we are worried about its highly negative impact on the growth prospects of the economy. The measure is certainly going to prove anti-saving and anti-investment when all-out efforts are needed to be made at this juncture to raise the dismal rate of domestic savings and encourage an investment-friendly environment. Savers/depositors do not need to be harassed or put under undue pressure but must be rewarded because, wittingly or unwittingly, they are doing a great service to the economy. Certainly, they should be made to pay due taxes but accessing all the bank accounts on a regular basis and that too without some very valid reason or permission from the judiciary would be too intrusive and disagreeable for an ordinary depositor. All in all, the measure could yield certain small amount of tax revenues for a year or two but would ultimately undermine the growth prospects of the economy and lead to further unemployment in the country by reducing the credit creating potential of the banks.