Banking Sector’s Tax Contribution Surges by Over 80% in H1 2022

The imposition of multiple taxes on the banking sector has increased its tax contribution by 83% in the first half of 2022 as compared to the same period of 2021, hitting the profit growth of most of the banks.

According to the State Bank of Pakistan’s (SBP) data, the tax revenue deposited by the banking sector to the national kitty surged to Rs. 173.6 billion during the period of January to June 2022 as compared to Rs. 94.4 billion during the same period of 2021.

The huge taxation in the recent budget, including a 4 percent super tax, has eroded the profitability of the banks. Banks with less than a 50 percent advance-to-deposit ratio also paid additional tax to the tune of up to 55 percent to the national exchequer.

The pre-tax profit of banks increased to Rs. 299 billion during the period of January to July 2022 as compared to Rs. 217 billion reported during the same period of 2022, showing a staggering increase of Rs. 82 billion or 37 percent year-on-year (YoY) in pre-tax profitability.

Similarly, the profit-after-tax of the industry increased to Rs. 126 billion during the period of January to July 2022 as compared to Rs. 122 billion reported in the same period of 2021, depicting an increase of Rs. 4 billion or 3.7 percent on a YoY basis.

The multiple taxes on the banking sector has negatively impacted the banks with low advance-to-deposit ratios. These taxes were imposed by the incumbent government to generate additional revenues for the national kitty in order to meet the annual target through taxing profitable sectors.

While the government looks towards the banking sector to generate tax revenues, banks also continued to make margins through investment in government papers.

It is expected that the banking industry will conclude the calendar year with negative growth in profitability. Some banks may succeed in saving taxes by enhancing their advanced-to-deposit ratios.



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