Pakistan's New Bank-Reporting Regime: What Section 165AB Means for High-Value Account Holders

From 1 July 2026, banks and electronic money institutions in Pakistan are required to report to the Federal Board of Revenue the details of any account holder whose deposits or withdrawals exceed one hundred million rupees over a six-month period. The measure has been widely described as a "new banking law." That description is understandable but not quite accurate, and the distinction matters.

This is not a banking statute. It is a tax-transparency measure. The requirement has been introduced as a new Section 165AB of the Income Tax Ordinance, 2001, inserted by the Finance Act 2026 and titled "Reporting of Financial Transaction Data by Banking Companies and Financial Institutions." Its purpose is not to regulate banking as such, but to give the tax authority a direct, automated view of high-value banking activity so that it can be checked against what taxpayers have declared. Understanding that purpose is the key to understanding who is affected and how.

What the provision actually requires

The mechanics are straightforward once the framework is clear.

Who must report. Every banking company and every Electronic Money Institution (EMI). The obligation is placed on the institution, not the account holder.

The reporting trigger. An account holder becomes reportable where their deposits or withdrawals exceed Rs 100 million during a reporting period. Critically, the threshold is measured in aggregate across all of the account holder's accounts — not account by account. A person or business spreading activity across several accounts is assessed on the combined total.

What is reported. For each reportable account holder: the particulars of deposits and withdrawals, the opening and closing balances, the highest balance recorded during the period ("peak credits"), and the total credits during the period. "Accounts" is defined broadly to include current, call, savings, fixed and term-deposit accounts.

Where it goes. The information is uploaded electronically to a Central Data Hub maintained by the FBR, operated through Pakistan Revenue Automation Limited (PRAL).

How often. Reporting is twice yearly. Data for 1 July to 31 December is due by 31 January; data for 1 January to 30 June is due by 31 July.

The most consequential feature: the override of banking secrecy

The single most significant aspect of Section 165AB is not the threshold but the clause that surrounds it. The provision operates notwithstanding the Banking Companies Ordinance, 1962, the State Bank of Pakistan Act, 1956, the Protection of Economic Reforms Act, 1992, and any other law in force.

Those statutes have long underpinned the confidentiality of banking relationships in Pakistan. Section 165AB expressly overrides them for the purpose of this reporting. In effect, the legislature has decided that, above the Rs 100 million threshold, tax-transparency now takes precedence over the traditional protection of banking secrecy. That is a considered policy shift, and clients should appreciate it as such rather than as a mere administrative formality.

What the measure is — and is not

Because the popular framing has caused some confusion, it is worth being precise about the boundaries of this regime.

It is not a new tax. Section 165AB imposes no charge and changes no rate. It is a reporting and data-matching mechanism. Crossing the Rs 100 million threshold does not, by itself, create any liability; it creates visibility.

It is not anti-money-laundering reporting. Pakistan's AML framework — suspicious transaction reporting to the Financial Monitoring Unit under the Anti-Money Laundering Act, 2010 — is a separate regime with a different purpose and different thresholds. Section 165AB sits alongside it and is directed specifically at tax cross-matching.

Reaching the threshold is not an accusation. Large, legitimate turnover is ordinary for many businesses and high-net-worth individuals. The regime is designed to surface mismatches between banking activity and declared income, not to treat every large account as suspect.

How the data is used

The FBR's system is built to run algorithmic cross-matching between the reported banking data and taxpayers' declared positions, with the stated aim of detecting under-reporting of sales, overstatement of expenses, and undeclared taxable income. The design includes procedural features intended as safeguards: the raw data is processed digitally, and where a significant mismatch is identified, the matter is routed into the FBR's Compliance Risk Management system and handled through the faceless assessment framework rather than by direct human access at the discovery stage. The FBR is also placed under an express obligation to keep the information confidential and to prevent its disclosure or misuse.

These are meaningful safeguards on paper. Whether they prove sufficient in practice — particularly given the breadth of the secrecy override and the sensitivity of the data involved — is a legitimate question, and one that data-protection and confidentiality practitioners will watch closely as the regime beds in.

Who is affected in practice

The regime is relevant to a defined but substantial group: businesses with significant turnover, high-net-worth individuals, property and commodity traders, and anyone whose combined banking activity crosses the threshold — including those who might not have thought of themselves as "large" account holders because their activity is spread across multiple accounts.

For these clients, the practical implications are less about the reporting itself, which is the bank's obligation, and more about ensuring that what the FBR will now see reconciles with what has been declared.

Practical guidance

The right response to Section 165AB is preparation, not alarm. In practical terms:

• Reconcile declared income with banking reality. The regime rewards taxpayers whose declared positions align with their banking activity. Now is the time to ensure that turnover, drawings and balances are consistent with filed returns.

• Understand your aggregate position. Because the threshold is measured across all accounts, account holders should assess their total position rather than assuming individual accounts fall below the line.

• Document the source and nature of large flows. Legitimate high-value activity — asset sales, inter-company transfers, capital injections, inheritances — is entirely proper, but it is far easier to explain a flow that is documented contemporaneously than one reconstructed under query.

• Treat any mismatch notice seriously and early. Where a discrepancy is raised, a measured, well-evidenced response through the proper channel is materially better than delay.

None of this involves avoiding the regime; it involves being ready for it. The distinction between lawful reconciliation and unlawful concealment is one on which advice should always be taken.

A concluding observation

Section 165AB reflects a broader direction of travel in Pakistan's fiscal policy: the steady documentation of the economy and the use of technology to close the gap between declared and actual activity. For most compliant taxpayers, its practical effect will be limited to knowing that their banking activity is now visible to the tax authority above a high threshold. For those whose declarations and banking activity diverge, it changes the landscape considerably. In either case, the prudent step is the same — to ensure that one's affairs are in order before the first reporting cycle closes, rather than after.

Muzy & Meraris LLP advises on taxation, banking and finance, and private client matters from its offices.This briefing is general in nature, reflects the position as at 1 July 2026, and does not constitute legal or tax advice on any specific matter. Advice should be taken on individual circumstances before any action is taken or refrained from in reliance on this note.