ByThe recent Tax Laws (Amendment) Bill 2024 in Pakistan’s National Assembly has introduced sweeping changes to how banks and the Federal Board of Revenue (FBR) share information. This marks a significant step toward tightening tax compliance and broadening the tax net, with enhanced measures aimed at identifying and addressing discrepancies in taxpayer data. In today’s article, we will explore the implications of this new law, particularly focusing on how banks and the FBR will interact, what information will be shared, and what it means for taxpayers.
Key Highlights of the Amendment
The amendment introduces changes to Section 175 and Section 175A of the Income Tax Ordinance. Historically, banks were required to auto-share specific data with the FBR, such as:
- Monthly deposits exceeding PKR 10 million.
- Single deposits of PKR 10 million or more.
- Cash withdrawals of PKR 1 million or above.
- Credit card transactions exceeding PKR 200,000.
While these thresholds ensured that high-value transactions were reported, the FBR faced challenges in processing this data manually. The reliance on individual account analysis often led to inefficiencies and delayed actions. Recognizing this, the new amendment focuses on leveraging automation and data integration to streamline the process.
Enhanced Data Sharing Mechanism
Under the new system, the FBR will no longer wait passively for banks to share transactional data. Instead, the board will utilize its automation software to proactively identify “risky accounts.” The criteria for identifying such accounts will include irregularities in income declaration, turnover discrepancies, and variances in wealth statements.
For instance, if a taxpayer declares PKR 1 million in taxable income for one year but reports a significantly reduced income or turnover in subsequent years without justifiable reasons, the FBR’s system will flag this as a potential risk. The system will cross-check this data with information from linked departments, such as property records, excise and taxation data, and international travel histories.
One-Window Operation for Banks
A significant feature of the amendment is the introduction of a one-window operation linking all banks through the State Bank of Pakistan. Banks will now have access to a centralized portal where they can input a taxpayer’s CNIC or NTN. This will reveal all accounts held by the individual across multiple banks, ensuring that no account remains hidden.
The FBR will then direct banks to verify specific accounts and provide a detailed summary of transactions. If significant discrepancies are found—for example, if a taxpayer declares an income of PKR 8 lakhs but transactions of PKR 2 million are observed—the bank will report back to the FBR with its findings. This systematic approach eliminates the need for manual case-by-case investigations.
Implications for Taxpayers
For taxpayers, these changes underscore the importance of accurate and transparent reporting. In the past, it was common for individuals to declare only one active account in their tax returns while conducting transactions through multiple accounts. This practice will no longer be feasible under the new law.
Taxpayers are advised to ensure that all active bank accounts are declared in their tax returns. Discrepancies between declared income and bank transactions could lead to scrutiny, notices, or even penalties. Additionally, taxpayers must reconcile their bank statements with their declared incomes to avoid complications.
Implementation Timeline
The Tax Law Amendment Bill 2024 was approved on December 18, 2024, and its provisions are set to be implemented in phases. High-risk accounts will be prioritized in the initial phase, with the definition and criteria for “risk” to be outlined by the FBR. Lower-risk accounts will be addressed in subsequent phases.
As these changes roll out, taxpayers must stay updated on new regulations and ensure compliance to avoid potential penalties. This step toward modernization and accountability will likely play a crucial role in strengthening Pakistan’s tax infrastructure.
