ISLAMABAD: The Federal Board of Revenue (FBR) has evolved common reporting rules for the banking sector to bring it on a par with International Reporting Standards (IRS) for the exchange of financial information about bank accounts of non-residents with the Organisation for Economic Cooperation and Development (OECD) nations.
The move is aimed at reducing the possibility of tax evasion.“We have notified the new rules for the common reporting system to the banking sector,” a senior tax official told Dawn on Friday.
In September 2016, Pakistan signed the Convention on Mutual Administrative Assistance in Tax Matters, which paved the way for the exchange of information regarding offshore accounts. The need for signing the law was felt in the wake of Panama Papers case.
The official said evolving rules for the banking sector is the first step towards the implementation of the multilateral convention on tax evasion. These rules provide for the exchange of non-resident financial account information with tax authorities in the account holders’ country of residence.
The new rules will be communicated to banks to seek all information from non-residents who keep bank accounts in Pakistan. Those people who do not provide details to banks will be subject to penalties under Income Tax Ordinance 2001.
The new rules will empower banks to submit a report to the FBR field formation regarding non-compliant non-residents.
To comply with the convention in the first year of its implementation, Pakistan will have to provide information of non-residents with bank accounts in Pakistan during July 1 and December 31 of the current year to 105 members of the OECD treaty.
The information will be regarding those non-residents who will open their banks accounts in Pakistan during the six-month period. There is no cash limit for bank accounts of non-residents during this period.
Contrary to this, bank accounts of non-resident individuals that were opened in Pakistan prior to July 1, 2017 with more than $1 million will also be shared with OECD treaty members.
The deadline for the sharing of information with OECD countries for the first year will be September 2018. Pakistan will be bound to share information of non-residents within a period of nine months after the completion of a calendar year.
“We have held several meetings so far with banks’ representatives to sensitise them to the requirements of the automatic exchange of information of bank accounts under the convention,” the official said.
The official said the government has already introduced amendments to Income Tax Ordinance 2001: Section 165B was introduced in the ordinance about the sharing of bank account details of non-residents with their countries of origin.
A centralised system will be established in FBR Islamabad at a cost of 500,000 pounds to collect data from all banks across the country. The software installed will automatically share bank account details of non-residents with their countries of origin.
Initially, four to five commissioners of Inland Revenue will be posted as focal persons for collecting data from banks regarding non-residents, the official added.
The adoption of common reporting rules in 105 countries will enable each member to discover undetected tax evasion. These rules will also enable governments to recover tax revenue lost to non-compliant taxpayers.
This will also help by increasing voluntary disclosures of concealed assets and by encouraging taxpayers to report all relevant information.
Another amendment was introduced in the law to keep citizens’ information secret, which will remain available only to the departments concerned.
The FBR introduced Section 165A in the ordinance a couple of years ago to seek bank account details of Pakistanis. However, this amendment was challenged in court and was stayed.
OECD Model Article 26 of the Avoidance of Double Taxation Treaty empowers a signatory nation to seek information regarding specific persons for specific reasons.
Published in Dawn, February 18th, 2017
