Corporate tax target at risk as banks\' profit declines

Doulot Akter Mala | Published: May 26, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

Lower growth in operating profit of major corporate taxpayers has put the revenue authorities in the soup as far as attaining its tax collection target for the current fiscal year (FY) is concerned.
The Large Taxpayers Unit of the revenue board's income tax wing has found that the operating profit of top tax-paying banks posted a slow growth in the calendar year 2015. It will leave an adverse impact on the corporate tax collection.
"Although operating profit of the banks grew slightly, the taxable profit may mark a negative growth," said a senior tax official.
Explaining the situation, the tax official said operating profits of 24 commercial banks, the major corporate taxpayers, grew only 1.38 per cent throughout the last calendar year from January to December.
With the poor growth in operating profits the tax officials estimated a fall in taxable profits of the banks.
Officials said already the authority was struggling to achieve the high corporate tax collection target with several indicators remaining negative, including the cut in tax rate by 2.5 per cent for banks and financial institutions in the budget for the FY 2015-16.
In the first ten months of the current fiscal, the LTU faced a shortfall of nearly Tk 40 billion (4,000 crore) against its tax collection target.
The target for the LTU has been set at Tk 196.80 billion in the FY 2015-16.
The sluggish tax collection prompted the tax authority to scrutinise the financial health of the top 24 corporate taxpayers, all commercial banks, to avert possible shortfall in revenue collection by June 30 next.
The income tax wing of the National Board of Revenue (NBR) has decided to sit with the representatives of the commercial banks and other large companies to discuss the corporate tax issues.
The board has arranged a meeting with 23 large corporate taxpayers today (Thursday) at the NBR premises where top officials from the commercial banks, Grameenphone, British American Tobacco and Square Group will be present.
The LTU found that the AB Bank's operating profit posted a negative growth of 27 per cent, Islami Bank 6.0 per cent, Eastern Bank 10 per cent, Standard Bank 16 per cent and Dhaka Bank 8.0 per cent.
Profit of the top taxpayer Standard Charted Bank declined by Tk 2.20 billion in 2015 while AB Bank's profit went down by Tk 1.77 billion.
In this situation tax officials expressed their concern over the Bangladesh Bank's (BB's) directive to offer 10 per cent rebate to good borrowers on their paid interest on loans. Â
They said financial incentives for the good borrowers would erode the taxable profit of the commercial banks and hit the corporate tax collection directly.
Talking to the FE, Anis A Khan, Chairman of the Association of Bankers, Bangladesh (ABB), said banks' profits saw a mixed trend in 2015 with some banks gaining profit and some incurring losses.
"It is difficult to guess the financial health of the banks for 2016 with the trend of the last three months. But there could be a static or moderate growth (of banks) in the current year," he said.
On BB's directive, the ABB chairman said the good borrowers are enjoying financial benefit from banks, they do not have to give collateral and get benefit on opening any letter of credit (L/C).
"It is quite difficult to give the rebate to the good borrowers from the tax-paid amount," he said.
The LTU collects 60 per cent of its tax from commercial banks. Achievement of the corporate tax collection target largely depends on the financial condition of the commercial banks.
doulot_akter@yahoo.com