Section 165B of Income Tax Ordinance, 2001 makes it mandatory for financial institutions, including banks, to furnish transaction details of non-residents or other reportable persons to the Federal Board of Revenue (FBR).
The move aligns with global efforts for the automatic exchange of information to prevent tax evasion and ensure that financial institutions play a proactive role in upholding tax compliance.
The amended Section 165B reads: “Furnishing of information by financial institutions including banks.— (1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act,1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of1947) and any regulations made under the State Bank of Pakistan Act,1956 (XXXIII of 1956) on the subject, every financial institution shall make arrangements to provide information regarding non-resident or any other reportable persons to the Board in the prescribed form and manner for the purpose of automatic exchange of information under the bilateral agreement or multilateral convention.
(2) All information received under this section shall be used only for tax and related purposes and kept confidential.”
(3) For the purpose of this section, the terms “reportable person” and “financial institution” shall have the meaning as provided in Chapter XIIA of the Income Tax Rules, 2002.”
This amendment empowers the FBR to collect information from financial institutions, regardless of existing laws or regulations that might otherwise restrict such disclosures. Financial institutions, including banks, are mandated to furnish details regarding non-residents or other reportable persons in the prescribed form and manner. The collected information will facilitate the automatic exchange of information under bilateral agreements or multilateral conventions, fostering international cooperation in curbing tax evasion.
The confidentiality of the information received under Section 165B is emphasized, ensuring that the data is used exclusively for tax and related purposes. This provision aligns with global standards that prioritize the secure and limited use of exchanged information to safeguard the privacy and interests of the involved parties.
For clarity, the terms “reportable person” and “financial institution” in this context are defined as per Chapter XIIA of the Income Tax Rules, 2002, providing a standardized framework for interpretation and implementation.
This move has been commended by experts as a progressive step towards ensuring greater financial transparency and adherence to international best practices. The automatic exchange of information is a crucial tool in the fight against global tax evasion, allowing countries to share data and identify non-compliance more effectively.
The introduction of Section 165B to the Income Tax Ordinance, 2001, marks a pivotal moment in Pakistan’s commitment to global tax transparency. By mandating financial institutions, including banks, to disclose transaction details of non-residents, the country is taking proactive steps to align with international standards and strengthen its position in the fight against tax evasion. This amendment is expected to contribute significantly to a more robust and cooperative global tax enforcement environment.
