New taxes won’t erode banking sector gains — Stanbic Bank boss
The Managing Director of Stanbic Bank Ghana Limited, Mr Alhassan Andani, has observed that the new tax regime will not adversely affect the balance sheets of banks because they anticipated and prepared for it.
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Given that the taxes took effect on January 1, this year, Mr Andani said banks, just like other firms, were expected to adjust by factoring the increments into their financial plans for 2016 and the years ahead.
Once that is done, the Stanbic Bank boss explained in an interview with the GRAPHIC BUSINESS, that the impact of the taxes would then be catered for, making the implications on companies’performances almost negligible.
“Tax expense, although is a massive outflow, is not big enough for a company to necessarily fold unless your margins are already so thin,” Mr Andani told the GRAPHIC BUSINESS on May 29.
“The difficulty with these taxes would be if they came in the middle of a financial year. With that, you would have had to adjust and typically your profit margins would have dropped but with this one, I do not see that happening because it came in the beginning of the year.
“I know it’s difficult but for companies, especially for us the banks, tax lines should not result in us or other firms making losses,” he said.
Forum on tax
Mr Andani, a banker with several decades of experience, was speaking to the paper ahead of the GRAPHIC BUSINESS-Stanbic Bank Business Breakfast Series scheduled for today, May 31.
The series, the first in the year, is on the theme “The New Tax Law: Its Implications for the Economy and Businesses.”
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The initiative by the paper, a weekly financial and economics publication by the Graphic Communications Group, is to afford stakeholders the opportunity to deliberate on the implications of the Income Tax Act, 2015 (Act 896), on businesses and the economy in general.
The Act 896, which took effect on January 1, this year, replaced the Internal Revenue Act, 2000 (Act 592), which had been in operation 16 years.
The repealed law had been criticised for failing to consolidate the country’s tax laws, a challenge the new Act sought to address.
Its introduction was, however, met with some agitations from the business community, majority of who saw it as a heavy blow that could cripple the already fragile private sector.
However, taking the GRAPHIC BUSINESS through the Act 896 and its implications on the banking sector, the MD of Stanbic Bank said the affront nature of taxes made it possible for businesses to institute measures to deal with it.
“The biggest problem with tax is predictability. If firms know (the amount of taxes they will pay in the ensuing year) before they go into a financial cycle, then their budgeting would accommodate all of that,” he explained.
Implications on asset quality and deposits
Mr Andani’s comments on the impact of the new tax regime on the banking sector come on the back of dwindling fortunes in the performance of banks.
A Bank of Ghana report on the performance of banks in the last quarter of 2015 showed that growth in the sector contracted by 5.4 per cent within the three month period.
Non-performing loans (NPLs) also deteriorated by 14.9 per cent to GH¢4.52 billion, according to the report that was released in the week ending March 11.
As a result, many feared that the new ave of taxes, which affected almost all kinds of businesses, including banks, would cripple the banking industry further.
Mr Andani, however, said such an assumption was far-fetched, given the affront nature of the taxes.
Although he admitted that higher taxes could threaten the asset quality of banks, he said he did not foresee that happening in the current regime as banks would have made provisions for the new fiscal regime.
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On the implication on deposits and credit creation, Mr Andani said cyclical nature of taxes made it difficult for one to say that higher taxes would starve banks of deposits and credit in general.
Given that the government normally uses the revenue accrued to finance public expenditure, the Stanbic Bank said the same money is expected to return the banking sector, although in a later date
“The tax goes out, which is an expense, but it comes back as government’s expenditure through the payment of salaries, road contractors and other things like that. It’s not as if they suck it and everybody is starved of savings, no,” he said. –GB
Pull quote
I know it’s difficult but for companies, especially for us the banks, tax lines should not result in us or other firms making losses
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