Committee Blocks FBR Access to Banking Data

The National Assembly Standing Committee on Finance and Revenue has rejected a significant proposal contained in the Finance Bill 2026 that sought to authorize the Federal Board of Revenue (FBR) to access and cross-match taxpayers’ banking information through a centralized data-sharing framework operated by the State Bank of Pakistan (SBP).

During its review of proposed amendments to Section 175AA of the Income Tax Ordinance, 2001, the committee approved only the enabling provision empowering the SBP to establish, manage, and maintain a secure centralized virtual repository containing banking records, financial information, and transaction data maintained by scheduled banks.

However, committee members declined to approve additional provisions that would have permitted the SBP, microfinance banks, and Electronic Money Institutions (EMIs) to process banking data through algorithmic systems and share analytical results with the FBR for compliance and enforcement purposes.

Pakistan Peoples Party MNA Sharmila Faruqui expressed concerns regarding the potential misuse of sensitive taxpayer information and the broader implications for financial privacy.

In response, Director General of the Tax Policy Unit Dr. Najeeb Memon informed the committee that data analysis would be conducted through the Compliance Risk Management System and emphasized that cases involving significant discrepancies would remain subject to confidentiality safeguards.

According to FBR officials, the proposed framework was intended to identify individuals conducting substantial banking transactions while remaining outside the tax net by failing to file income tax returns.

Former Foreign Minister and MNA Hina Rabbani Khar strongly opposed the proposal, arguing that banks should not be transformed into instruments of tax investigation. She maintained that taxpayer audits and investigations were already within the jurisdiction of the FBR and that involving financial institutions in enforcement activities raised serious policy concerns.

Committee Chairman Naveed Qamar subsequently directed that the provision authorizing the SBP to establish the centralized banking repository be retained, while all remaining amendments relating to banking data sharing and algorithmic reporting to the FBR be removed from the proposed legislation.

FBR Member Strategic Transformation Dr. Hamid Ateeq Sarwar defended the proposal by highlighting the substantial volume of funds circulating within Pakistan’s banking system. He stated that approximately Rs37 trillion remained in circulation through bank accounts and questioned how authorities could effectively identify non-filers conducting large-scale financial transactions without access to cross-matched banking data.

He further noted that nearly 76% of tax revenues were contributed by large corporate entities, raising concerns about the sustainability of relying predominantly on the formal corporate sector for revenue generation.

Separately, the committee reviewed and approved most proposed amendments relating to tax offences and penalties, subject to certain modifications.

Members raised objections to a proposal seeking to increase the late-filing penalty for individual taxpayers from Rs1,000 to Rs25,000, arguing that genuine late filers should not be subjected to disproportionately harsh penalties.

Addressing the concern, Dr. Hamid Ateeq Sarwar stated that the enhanced penalty was specifically designed to target individuals who intentionally delay filing returns and subsequently seek active taxpayer status solely to avoid higher taxes when purchasing immovable property or vehicles.

He explained that genuine taxpayers already benefit from a 15-day grace period after the filing deadline, along with an additional 15 days, effectively providing a 30-day compliance window. He further noted that filing extensions are routinely granted upon request and that legally disabled individuals remain exempt from the proposed penalty regime.

Committee Chairman Naveed Qamar questioned the rationale behind simultaneously encouraging tax compliance while substantially increasing penalties for late filing. He repeatedly sought clarification on how the FBR intended to distinguish between genuine late filers and individuals seeking temporary compliance benefits for asset purchases.

Following extensive deliberations, the committee approved a compromise proposal under which an explanatory provision will be inserted into the law. Under the revised framework, enhanced late-filing penalties will not apply to taxpayers who file returns late, provided they do not purchase immovable property within three months of obtaining active taxpayer status.