ISLAMABAD, June 26: The government has decided to bind all financial institutions to report interest income of depositors to tax officials from July 1, 2003.

Officials told Dawn on Thursday that the Central Board of Revenue (CBR) would shortly issue a circular to require financial institutions to report all interest income from the next tax year.

The decision was one of the International Monetary Fund’s (IMF) conditionalities of fifth review of $1.47 billion poverty reduction and growth (PRGF) scheme for Pakistan.

According to officials, Finance Minister Shaukat Aziz and governor, State Bank, Dr.Ishrat Hussain would discuss the modalities and procedures for reporting the interest income to the CBR.

The government has already constituted a committee of high officials to work out procedures for banking sector to provide all necessary information to tax officials about the tax deducted on interest amount of a depositor in a bank during a tax year.

During the preliminary meeting in this regard, the committee proposed some measures, which would be discussed at length during the forthcoming meeting of the governor, SBP and finance minister, said the officials.

The officials were of the opinion that the decision was aimed at whitening the black economy lying in the banks with a move to avoid due taxes on it.

Currently, all banks are only providing information about the deduction of withholding tax on interest amount of depositors in an aggregate forms bi-annually. The banks are deducting withholding tax at the rate of 10 per cent on the interest amount of depositors two times in a financial year.

The decision would empower the tax officials to ask the banks to furnish information about the principle amount of a depositor, which was earlier a secret deal and were only for banking internal consumption.

The tax officials defended the decision, saying under the old income tax law, there was no minimum limit for the deduction of withholding tax on profit of interest amount of any depositors, which was discriminatory as at the same time for the normal taxpayers, the minimum tax exemption limit was Rs80,000.

To do away with this discrimination, the officials said that the government under the new income tax law 2001 made the deduction of the withholding tax on profit of interest amount adjustable with other incomes of a taxpayer.

The officials said that for providing the facility, it was necessary for the CBR to have the first hand information about the account of a depositor, without it, it would not be possible to pass on the credit to taxpayers.

According to the banking secrecy act, the bank could only provide an information of a depositor to courts on demand and recently to NAB in case of investigation.