Amendment to Income Tax Ordinance establishes centralized banking data repository for algorithm-based tax compliance checks
ISLAMABAD: The Finance Act, 2026 has significantly strengthened Pakistan’s digital tax enforcement framework by empowering the State Bank of Pakistan (SBP) to establish a centralized repository of banking data and share financial information relating to high-risk persons with the Federal Board of Revenue (FBR).
The amendment to Section 175AA of the Income Tax Ordinance, 2001 expands the legal framework governing the exchange of banking and tax information by inserting a new clause authorising the SBP to establish, operate and maintain a secure virtual repository of banking records.
The measure forms part of the government’s broader strategy to use technology, automated analytics and digital data matching to improve tax compliance, detect concealed income and strengthen documentation of the economy.
SBP to maintain centralized banking repository
Through the Finance Act, 2026, Parliament inserted clause (c) into Section 175AA, authorising the SBP to establish, operate and maintain a secure centralized virtual repository containing banking records and financial transaction data maintained by scheduled banks.
The repository will maintain banking information linked through unique identifiers, enabling algorithm-based matching of financial data with taxpayers’ declarations.
Under the amended law, the SBP will collect, process and provide relevant data and analytical results to the FBR in accordance with procedures prescribed by the Board.
Enhanced exchange of banking and tax information
Section 175AA already permits the FBR to share tax declaration information with scheduled banks for algorithmic verification.
Banks are required to compare tax declarations with their own banking records and identify cases where financial information does not correspond with the prescribed algorithms.
With the insertion of the new clause, the SBP assumes a central role by creating the technological infrastructure required to consolidate banking information and facilitate secure data exchange between scheduled banks and the FBR.
The amended provision overrides the relevant provisions of the Banking Companies Ordinance, 1962, the State Bank of Pakistan Act, 1956, Section 216 of the Income Tax Ordinance, 2001, and other applicable laws to the extent necessary for implementing the information-sharing mechanism.
Shift towards digital tax enforcement
The Finance Act, 2026 reinforces the government’s growing reliance on artificial intelligence, automated risk assessment and centralized digital databases to strengthen tax administration.
The integrated banking and tax information is expected to enable the FBR to identify discrepancies between declared income and actual financial activity, allowing the tax authority to focus compliance efforts on high-risk taxpayers through data-driven risk analysis rather than broad-based audits.
Officials believe the centralized repository will improve the efficiency and accuracy of tax compliance checks while reducing manual intervention during the initial risk assessment stage.
Confidentiality safeguards
The amended law also provides that all information exchanged under Section 175AA shall be used exclusively for tax administration and related purposes.
It further requires that banking information received through the centralized system remain confidential and protected against unauthorised disclosure or misuse, while allowing its use for tax enforcement in accordance with the law.
The amendment complements other provisions introduced through the Finance Act, 2026 requiring banks and Electronic Money Institutions (EMIs) to report high-value financial transactions to the FBR’s Central Data Hub, further advancing Pakistan’s transition towards a technology-driven and data-centric tax administration system.
