State Bank of Pakistan (SBP) has observed that Federal Board of Revenue's (FBR) access to customer information under Section 165A of the Income Tax Ordinance 2001 discourages financial inclusion/mainstream banking and creates all kinds of risks for the customers of the banks.
In its budget proposals for 2018-19, the SBP has proposed to abolish Section 165A of the Income Tax Ordinance 2001. The insertion of explanation in Section 165 & addition of a new section 165A requires a general disclosure of customer information to the FBR, including giving online access to the FBR to banks' own databases.
The original Section 165 should be restored and Section 165A be removed, as the existence of Section 176 already allows the FBR to obtain information in the case of suspected tax evasion by any particular person, the SBP proposed.
Income tax law already vests power to the officials of the FBR to call for any information related to the taxpayers under section 176 of the Ordinance. The banks receive, on a very frequent basis, notices under Section 176 stating the name of the persons and their CNICs for provision of bank statements of the customer for past several years (in certain cases dating back to 2008). All the banks are providing specific information including complete bank statements to the requesting tax officials. Copies of such statements at times run into thousands of pages. Section 165A will discourage financial inclusion/mainstream banking that is high priority for the government and SBP and it creates all kinds of risks for the customers of the bank. Moreover, this will seriously hamper the FBR's drive towards documentation and promote informal and parallel sector of the economy by doing undocumented/ cash transactions in land and property.
"These amendments are in conflict with existing provisions of the Banking Companies Ordinance 1962 and Economic Reforms Act 1992 relating to customer confidentiality. A number of banks are already under litigation on the subject," the SBP added.