The Federal Board of Revenue has added one more distortion to the Income Tax Ordinance 2001 by inserting section 165A through the Finance Act 2014. This compels the financial sector to furnish the accounts profile of its clients to the tax authority.

The IT ordinance, with a view to encourage overseas Pakistanis to remit their money into the country through the banking channel, has granted immunity to it from the probe of their source by tax authorities. However, under section 165A, these remittances may now come under scrutiny by the tax authorities.

Section 165A overrules the secrecy clauses in the statutes governing the banking sector.

The banks are now required to furnish the information specified in the prescribed form and manner in respect of (a) online access to their central database containing details of account holders and all transactions made in their accounts; (b) a list containing particulars of deposits aggregating Rs1 million or more during the preceding calendar month; (c) a list of payments made by any person against bills raised in respect of a credit card issued to that person, aggregating Rs100,000 or more during the preceding calendar month; (d) a consolidated list of loans written off exceeding Rs1 million during a calendar year; and (e) a copy of each currency transaction report and suspicious transactions report generated and submitted to the Financial Monitoring Unit under the Anti-Money Laundering Act 2010.

Moreover, the banking companies are required to make arrangements to nominate a senior officer at their head office to coordinate with the FBR for provision of any information and documents, as may be required by the tax authority.

Section 165A (4) provides that the information received by the FBR under this section shall be used only for tax purposes and will be kept confidential. The finance minister has declared that only the chairman and members of the FBR can access this information. Furthermore, significant protection is available under u/s (4) of this section against the possible abuse of this information by the tax authorities.

This information u/s 216 will be confidentially treated, and its violation will be an offence punishable by a fine to the minimum of Rs500,000 or imprisonment of up to one year.

But despite the public assurances given by the finance minister and the FBR chief that the account holders’ information will not be accessed or shared by an ordinary field formation/officer of the tax department so as to avoid any misuse of the banking data, the volume of transactions and the large number of account holders in over thousands of bank branches can’t be assessed without the involvement of the field offices/staff.

These fears are strengthened by the statement of the FBR chief before a Senate standing committee that 14 senior tax officials would have access to the information instead of one, as was stated earlier.

But this contention of the FBR is not supported by the provisions of section 165A, which have given a freehand to the Board to use these discretionary powers under this cover to access bank information of any account holder. The banks are bound to provide the information and details of its account holders and all transactions, including online access to bank’s central database, to the tax authorities.

Therefore, the assurances of the finance minister or the FBR that the tax authorities would access only the information of those who are operating out of the tax net does not bear legal ground unless this section is amended.

Moreover, the legal/tax experts have termed the FBR’s powers u/s 165A ‘ultra virus’ to the constitution and a violation of banks’ principle of maintaining the secrecy of their account holders.

Secrecy of bank account holders has become a global issue. The investing magistrates handling UBS’ affairs in France sent a list containing 353 names of people suspected of holding Swiss accounts to Swiss authorities in June this year.

Switzerland’s financial sector is a traditional refuge for foreign depositors and has long-cherished the principle of secrecy.

However, Europe and the US have forced Switzerland to give up its age-old bank secrecy laws. The Swiss Parliament, coming under worldwide pressure, passed the historic ‘Return of Illicit Assets Act 2010’ — which will enable developing countries, including Pakistan, to recover the billions of dollars shifted to Swiss banks by unscrupulous individuals and companies.

However, it has refused to allow the automatic handover of account holders’ information, and also restricts the practice to specific cases; it would not generally operate against all bank account holders, as is the case with the FBR, which has acquired unlimited discretionary powers u/s 165A.

More than a dozen banks, suspected of cheating on US taxes, are under formal US investigation. The Swiss Federal Supreme Court has ruled that the government can transfer the bank records of an American client of Credit Swiss to US tax authorities.

The avoidance of double taxation treaty signed between Pakistan and Switzerland also contains an article making it obligatory for Swiss banks to exchange information regarding the maintaining of bank accounts by Pakistanis in these banks. But this article has never been revoked by the FBR, even though many countries have recovered money through similar provisions. The FBR has estimated that over Rs200 billion may be recovered if this article of double taxation is revoked.

Our tax policy is so tailored that it spares the influential heavyweights and sacred cows.

The claim to use the powers conferred under section 165A against un-documented sectors, with a view to broaden the tax net, appears as half true at best, because the depositors and the borrowers who transact through the banking channel are appropriately documented.