Lowering the corporate tax on banks will be an ‘extra privilege’ for the bankers if the central bank fails to provide adequate credits to the underprivileged sectors, former BB governor Dr Salehuddin Ahmed said.

Banks and Non-Banking Financial Institutions (NBFIs) currently pay taxes at 42.5 percent.
Dr Salehuddin Ahmed said though the rate of corporate tax in Bangladesh remains quite high compared to many developed countries, the rate of income tax on the bigwigs of the banking sector is very low.

“So, any cut in corporate tax will be an ‘extra privilege’ for the beneficiaries of the banking sector, such as directors, shareholders and top officials,” Dr Ahmed told daily sun.

The former BB governor, however, said the government can rationalise the tax rate (corporate tax) by lowering it slightly by 2 to 2.5 percent. “But the central bank must ensure that the banks increase their investment volume to the small and medium enterprises (SMEs) and other underprivileged sectors,” he said.

He viewed that the banks have a common trend to provide loans to a certain group of clients, who are widely known as ‘privileged’ business personalities. The trend leads to confinement of large amount of money in the hands of a few, depriving the other loan seekers.

“In order to reduce the discrimination, banks should go for effective initiatives to offer financial access to the underprivileged people,” Dr Salehuddin said.

In a surprising move, the parliamentary standing committee on finance ministry in its recent meeting recommended for lowering the corporate tax. The committee, however, did not suggest any specify amount to be slashed.

Earlier, the central bank sent a proposal to the finance ministry seeking reduction of corporate tax on banks and NBFIs.

The BB proposal mentioned that the current corporate tax rate on the listed companies is 27.5 percent while it is 37.5 percent for the non-listed firms.

Corporate tax on banks and FIs is 42.5 percent, which is quite high, the BB proposal observed.
A private bank owner said the high income tax on banks has a direct impact on bank lending rates.

“We could have been reduced the rate of interest for loans if the corporate tax had been lower,” said Nazrul Islam Majumder, chairman of Export Import Bank of Bangladesh Limited.

However, data reveals that the banks have not reduced their lending rates despite making huge profits in the last few years.

Private commercial banks logged as high as 90 percent growth in their operating profit in 2010, riding on a boom in stock-market and an upward trend in external business.

Most banks marked a rise in profit, ranging from 50 percent to 90 percent, while a few posted more than Tk 10 billion profit.

Primary data of 30 Private banks shows that their combined profit soared by 57 percent to Tk 132.03 billion in 2010, against Tk 80 billion in 2009.

In 2010, Islami Bank of Bangladesh made the highest profit of Tk 11.43 billion. Besides, National Bank and AB Bank logged more than Tk 10 billion each.

The profit of the private commercial banks increased by 10 percent in 2011 compared to the previous year.
The state-owned commercial banks also logged sufficient profit during the last few years, according to BB data.

The Daily Sun/Bangladesh/ 6th June 2012