ISLAMABAD: The government is planning to give legal cover to the banking sector to protect these financial institutions from litigation for disclosure of information about the account holders to the Inland Revenue Service (IRS) officers of the Federal Board of Revenue (FBR).
Sources told Business Recorder here on Thursday, that the proposed amendment in the relevant laws would protect the banks from civil suits for disclosure of information to the tax authorities under Income Tax Circular Number 9 of 2011. The protective provision would also give confidence to the banking sector to freely share requisite information about their account holders under Income Tax Circular Number 9 of 2011.
This is one of the major proposals to ensure free flow of information about the depositors from the banks to the tax department, which would help in documentation of the economy. Moreover, such a measure would further encourage the banks to freely share information required under FBR's circular number 9 of 2011.
The Federal Board of Revenue (FBR) had issued circular No 9 of 2011 to clarify and streamline the deduction of tax at source from payment of "profit on debt" under section 151 and 152 of the Income Tax Ordinance, 2001. The income tax circular has generally been received well by the banking industry and banks have started complying with the circular by disclosing information about their account holders.
Some of the banks apprehended that the disclosure of information about the account holders to the tax authorities might result in litigation by the account holders, whose information has been provided by the banks to the tax authorities. In order to protect the banks from litigation, the tax authorities would propose amendment in the statutory provision of the tax law which has been welcomed by the banking sector. The requisite amendment would be proposed in the relevant laws to ensure 100 percent compliance by the banking sector in this regard.
At the same time, in order to safeguard banks against potential litigation from their account holders whose information gets transmitted to FBR field formations for violation of confidentiality provisions contained in various governing statutes, it is proposed that a protective provision may be introduced in the relevant law.
According to sources, the proposed protective amendment could be by way of a proviso to section 165 of the Income Tax Ordinance 2001. The proposed amendment in the tax laws says, "Bank and other financial institutions shall not be liable to any civil or criminal proceedings against them for providing any information required under Income Tax Ordinance 2011 or rules framed thereunder", proposed amendment added. As a result of the proposed amendment in the relevant laws, it would further streamline flow of information from the banks to the IRS field formations, sources stated.
Under income tax circular, the detailed information in respect of each account holder from whom taxes are withheld /deducted is mandatory in order to determine the amount and category of transaction to ascertain nature of withholding liability; ascertain the application of correct rate of tax deduction; allow credit to individual taxpayers whose tax has been deducted/collected and arrive at overall correct tax liability of each taxpayer from all sources under all heads of income.
Therefore, the withholding agents including banks and Financial Institutions, hereinafter, will accordingly be required to disclose the information in the Monthly Withholding Tax Statements (and through the challan of payment at the time of deposit of tax deducted from payment of profit on debt) mandated to be furnished under Section 160 and 165 of the Income Tax Ordinance, 200. Where tax is not deducted as required under the Income Tax Ordinance, 2001, it is also obligatory to provide similar details and the basis of non-deduction of tax. The information required from Banks or Financial Institutions in respect of a specific person will continue to be governed under Section 176 of the Income Tax Ordinance, 2001 by the Commissioner or his delegates under approval of the Commissioner.
The Commissioner is empowered in requisitioning from the Banks or Financial Institutions, information in respect of a specific person, on the basis of CNIC in case of an account or accounts of an individual or joint account or accounts of the individuals or NTN/Registration /Name in case of other entities like, Companies, Partnerships, NPOs/Trusts, etc, the circular added.