The tax revenue collection from the largest corporate taxpayers might drop significantly in the current fiscal, following a decline of operating profits of private commercial banks (PCBs) in the first quarter.

Large Taxpayers Unit (LTU) of the National Board of Revenue (NBR) feared a revenue loss of Tk 10 billion in the current fiscal year (FY) due to a sharp fall of operating profits of most banks, both public and private.

Banks, financial institutions, insurance and leasing companies contribute about one-fourth of the revenue earnings by the income tax department.

Tax officials said they have collected, on an aggregate basis, the expected level of revenue earnings in the first quarter of the current fiscal but they are worried about next three quarters, particularly in the wake of a markedly declining trend in operating profits of banks.

If the situation of the first quarter of the current fiscal persists for a relatively longer period in the country's financial sector, the revenue loss will lead to further widening of the fiscal deficit unless there is a matching move to curtail public expenditure, particularly the recurring one, some analysts feared. 

Elaborating further, they noted that a larger fiscal deficit in the context of the current inflationary pressures in the economy and also because of an increasing amount of deficit of its balance of payments, will further compound the problems.

During July-September period of FY 2011-12, the revenue board collected Tk 10.53 billion as income tax only from banks. The aggregate tax collection target of the LTU from different sources for the first quarter of the current fiscal was Tk 18.15 billion. The unit has, however, exceeded its aggregate revenue collection target by Tk 10 million.

"We are concerned over the drop in income tax collection in the next quarters. Time for the next installments of such collections will be due in December, March and June. If financial condition of banks remains the same, then tax collection will be affected severely," said a senior tax official.

Plunging prices of listed issues in the country's stock exchanges, increased cost of fund and lower returns on investment have caused a sharp decline in operating profits of the PCBs, sources said.

According to available statistics, fifteen PCBs, out of 20, earned around Tk 13.74 billion as operating profits in the first quarter of FY 2011-12 against Tk 31.18 billion in January-March and April-June period of the last fiscal.

The operating profits of PCBs declined by Tk 1.85 billion -- taking the average figure of earlier two quarters into account -- in the third quarter of the current calendar year, compared to the situation during its first six months.

LTU collected 62 per cent of its tax receipts from banks, financial institutions, leasing and insurance companies. Out of this collection, banks alone contributed to 58 per cent of the aggregate income tax.

This fiscal, the government set an ambitious target for the LTU at Tk 92.40 billion, projecting a 24.86 per cent growth.
The official said improvement of the situation in the stock market and overall economic condition, can only reduce the risk about achieving the target during the current fiscal for income tax collections.

LTU received 13 per cent tax from telecom operators while 17 per cent of its tax collections came in the form of withholding tax.

Officials said banks are regularly depositing 10 per cent tax on interest payments to deposits at source. But there is also concern now over the collection of this tax, in view of the prevailing liquidity strains of the banks.

- Doulot Akter Mala

Source: The Financial Express/ Bangladesh/ 15th Nov 2011