Banking sector’s tax payment drops 56 percent in July-Jan

KARACHI: The Federal Board of Revenue’s (FBR) income tax collection from the banking sector sharply fell 56 percent to Rs29.37 billion during the first seven months of the current fiscal year of 2016/17 as the soft interest rate regime bit profitability of banks, sources said on Monday.

The sources said tax contribution of banks registered with the Large Taxpayers Unit (LTU) Karachi plunged Rs38.34 billion in July 1, 2016 to January 31, 2017 when compared with Rs67.7 billion collected in the corresponding period of the last fiscal year. “Decline in revenue from the banking sector added to the difficulties as the revenue body is already facing challenges in revenue collection due to incentives announced by the government for various sectors in the last budget besides the lower sales tax on petroleum products,” said an official.

The officials said the revenue from banking sector is a major component of the total income tax collection.  In January-December 2016, the collection from nine banks, registered with the LTU Karachi, including three top banks, amounted to Rs66.745 billion, up 27.53 percent over a year earlier.

The fall in revenue collection from the banking sector was due to setback in its profitability. The banking sector’s profitability declined 6.31 percent to Rs138.91 billion during the nine-month period of the last year.

The State Bank of Pakistan (SBP), in its banking system’s review, attributed the fall in profitability to declining interest rate. “Declining revenues on lending activity, lower returns on high stock of risk-free government securities and higher expense on repo borrowings has decelerated the net interest income, which has led to a decline in net interest margin of the banking sector,” said the SBP.

The FBR officials said the revenue board evolved a strategy to make up for the fall in revenue collection from the banking sector as well as from other key revenue spinners, including petroleum and fertiliser companies. The counterstrategy also deals with the situation amid zero-rating sales tax facility announced for the five export-oriented sectors.

An analysis of revenue contributed by the banks registered with LTU Karachi showed that major fall was recorded in Bank Al-Falah as its tax payment fell 80 percent. UBL followed suit with 72 percent decline, Sindh Bank (56 percent), HBL (50 percent), National Bank of Pakistan (50 percent), Habib Metropolitan Bank (49 percent), Meezan Bank (43 percent), Faysal Bank (41 percent) and Standard Chartered Bank’s tax contribution decreased 41 percent.