Banking sector: Net income tax collection increases

RECORDER REPORT

ISLAMABAD: The gross and net income tax collection from banking sector was Rs 50 billion and Rs 37 billion respectively in fiscal 2006-2007, which increased to Rs 75.6 billion and Rs 47.5 billion during July-March of 2011-2012.

The Federal Board of Revenue (FBR) on Saturday issued "Industry Profile: Banking Sector in Pakistan" which revealed that the banking sector has also been an important source of tax revenues. The increased profitability has led to higher tax contribution in absolute terms particularly during last few years. The gross and net income tax collection from banking sector was Rs. 50 billion and Rs. 37 billion respectively in fiscal: 2006-07, which increased to Rs.75.6 billion and Rs. 47.5 billion in fiscal: 2011-12 during July-March. However, despite enormous profits declared by the banks, the share of banking sector tax payment in income tax receipts has hovered around 10% during last six years.

The refund payments to banking sector particularly, in current fiscal have grown enormously i.e. Rs. 28 billion up to March 2012 against only Rs.4.7 billion in the corresponding period last year. Out of Rs. 76.2 billion direct taxes refunds in July-March 2011-12 Rs. 67.1 billion have been issued by the LTUs, moreover, the  major chunk i.e. around 42% have been issued to the banks in the said period.

Large Taxpayer Unit (LTU) Karachi has issued refunds of Rs 36.922 billion to the banks during July-March 2011-212 against Rs 14.838 billion in the same period last fiscal. LTU Islamabad has issued refunds of Rs 26.699 billion during July-March 2011-212 against Rs 3.643 billion in the same period last fiscal. The LTU Lahore has issued refunds of Rs 3.500 billion to banks during July-March 2011-212 against Rs 4.527 billion in the corresponding period last fiscal.

The FBR's analysis stated that the collection share of banking sector in total corporate income tax increased to 13.8% in 2008-09 but again started declining and reached to 11.3% in 2010-11. Keeping in view the hefty profits of banking sector in last few years the share of income tax should have also risen.

The report said that another area which needs detailed analysis is the composition of income tax paid by the banking sector. It is believed that the banking sector is one of the most documented and growing sectors of the economy. The analysis of share of income tax paid by banks under various heads invites attention of the concerned quarters. In 2006-07 banks deposited 23% of their total income tax with return and just 6% from collection out of demand, apparently a pleasant outcome of universal self assessment scheme (USAS).  However, in the later years, this pattern changed and share of payment with return lowered to 1-2% and collection on demands (CoD) share increased significantly i.e. 30-46%. Therefore, one may perceive that substantial increase in CoD is apparently the underreporting and concealment in income tax returns submitted by the banks. Nonetheless, it is encouraging to note that field formations through the appropriate efforts collected the concealed revenue to great extent.

The advance tax during current fiscal has declined and 49% of collection has been realised through advance tax against 64% in the corresponding period of previous fiscal.

It is pertinent to mention that FBR has changed its policies in shape of USAS and drastic reduction in rates, to create taxpayers friendly environment in the country and for the economic development, now it is the responsibility of all the taxpayers and specifically, the corporate taxpayers and the Banks to pay their due share to help enable the economy to grow and flourish, FBR's report added.