Six financially distressed banks squeeze corporate tax

Six financially distressed banks pose a significant challenge for the revenue authority in achieving its corporate tax-collection target for the current fiscal year as their submissions so far plummeted into a pit.

Tax officials have reported a precipitous 73.48-per cent fall in the taxes paid by these banks compared to the previous two fiscal years.

The weakened banks identified by the Large Taxpayer Unit (LTU) under the National Board of Revenue (NBR) are Union Bank, Islami Bank Bangladesh, Global Islami Bank Ltd (GIBL), Social Islami Bank, First Security Islami Bank, and Bangladesh Commerce Bank Ltd (BCBL).

Among them, BCBL has not submitted its tax returns for the last three fiscal years.

Global Islami Bank also failed to submit its tax return for the current fiscal year, although it has paid Tk 132 million in advance tax, according to LTU data.

A senior tax official states that the banks' fragile financial condition has prompted the tax authorities to hold off on enforcing compliance.

Under tax law, both corporate and individual taxpayers are required to pay advance tax in four instalments throughout the year, totalling 75 per cent of the previous year's paid taxes.

The five in distress collectively paid Tk 1.74 billion in taxes, including advance and tax-return payments, during the July-September period of the current fiscal year.

This happens to be crash from the Tk 6.59 billion paid during the same period in FY24. In FY23, these six banks paid Tk 10.79 billion in advance taxes.

The deadline for submitting tax returns for banks passed by on September 15, 2024. However, they can still submit returns by paying 2.0-percent monthly penal interest.

Global Islami Bank has paid Tk 132 million in advance taxes so far this year, down from Tk 660 million in total taxes paid last year.

Social Islami Bank's tax payment fell drastically to Tk 62.5 million this year from Tk 332.4 million last year. Similarly, First Security Islami Bank paid Tk 200 million this year, compared to Tk 1.5 billion in the first quarter of last year.

The decline in advance tax payments has raised concerns among tax officials, who fear a significant shortfall in corporate tax collection from large taxpayers this year.

Banks are among the largest contributors to corporate taxes, representing a major share of the overall state revenue.

Recently, a Tk 1.15- billion tax pay-order from Union Bank was bounced by Bangladesh Bank due to liquidity shortages. Last week, five cash-surplus banks agreed to inject Tk 9.45 billion in liquidity support to struggling banks through intervention by Bangladesh Bank.

National Bank Limited (NBL), First Security Islami Bank Limited (FSIBL), Global Islami Bank (GIB), Social Islami Bank Limited (SIBL) and Union Bank will receive this cash support from five banks-City Bank, Mutual Trust Bank, Dutch-Bangla Bank, Eastern Bank, and Bengal Commercial Bank.

Nurul Amin, Chairman of Global Islami Bank, states that the first priority after receiving the cash support will be to provide small withdrawals for depositors, ranging between Tk 0.1 million and Tk 0.5 million.

"We will also prioritize clearing remittances from expatriates and paying utility bills," he said, expressing hope that the crisis will soon be resolved.

However, tax officials point out that these banks are unlikely to make tax payments from the injected funds, which are earmarked for meeting depositor obligations.

During the July-September period, Islami Bank, which was one of the largest taxpayers among banks, saw its tax payments plummet from Tk 5.71 billion last year to Tk 200 million in the first quarter of this fiscal year.

In FY24, Islami Bank paid a total of Tk 3.11 billion in taxes during the same period, including Tk 1.39 billion in advance taxes and Tk 1.72 billion with tax returns.

A senior tax official estimates that approximately Tk 40 billion in corporate taxes may be lost due to the financial crunch affecting 10 to 12 banks.

He also mentions that a meeting with these struggling banks is scheduled for next week to discuss their "tax strategies and planning".

The government has set a target of Tk 375 billion in corporate tax collection for the LTU in the current fiscal year, up from Tk 290 billion collected last year. However, shooting this mark is proving increasingly difficult as tax collection from large taxpayers has plateaued in recent years, making it harder to increase revenue from existing contributors.

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