In a decisive move to bolster transparency in financial transactions, the Federal Board of Revenue (FBR) is set to require all banks to provide detailed information on individuals receiving profit on debt, effective from July 1, 2020.
The amendment, introduced through the Finance Bill 2020, aims to widen the tax net by removing the Rs500,000 reporting threshold, thereby requiring banks to report all profit recipients, regardless of the amount.
The change builds on previous legislative efforts to enhance tax compliance and reduce tax evasion. The Finance Act of 2013 introduced a legal framework obligating banks to report specific customer transactions to tax authorities. This legislation overrode several prior regulations, including the Protection of Economic Reforms Act of 1992, the Banking Companies Ordinance of 1962, the Foreign Exchange Regulation Act of 1947, and the State Bank of Pakistan Act of 1956. By superseding these acts, the law prioritized transparency and created a legal basis for banks to disclose financial data without breaching privacy protections once safeguarded by earlier laws.
EY Ford Rhodes Chartered Accountants, in their commentary on the Finance Bill 2020, explained that the latest amendment will eliminate the existing Rs500,000 threshold introduced under the Finance Supplementary (Amendment) Act, 2018. Initially, banks were only required to report individuals earning over this limit on profit from debt within a given financial year. By removing this cap, the FBR now mandates that banks disclose information on all individuals receiving profit on debt, regardless of the amount, thus capturing a broader demographic.
Under the expanded regulation, banks must now provide details on various customer transactions, including deposits, card transactions, and debt profits. The data-sharing requirement aligns with the FBR’s long-term strategy to improve tax compliance across the country and broaden the taxable base by uncovering unreported income sources. Officials believe that the elimination of the threshold will play a pivotal role in identifying previously undisclosed earnings, especially among individuals who may have previously evaded taxation through lower profit amounts.
The policy shift has received mixed reactions from financial analysts and tax experts. Some view the mandate as a necessary measure to combat tax evasion, whereas others express concern over potential privacy issues and operational challenges for banks in complying with the new reporting requirements.
As the Finance Bill 2020 provisions take effect, the FBR is expected to increase its scrutiny of financial transactions, ushering in a new era of accountability for debt profit recipients. The expanded oversight aims to encourage tax compliance and ensure that all income-generating activities, irrespective of size, are transparently reported to the tax authorities.