Banks will not be able to enjoy the happy hours as last year from the large interest spreads from government securities and adding to this, the Value Added Tax (VAT) from this year will see unprecedented challenges in the sector, analysts say. Analysts noting that the VAT, an indirect form of taxation, was exempted for [...]

Business Times

No more happy hours for banks this year from G-Secs

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Banks will not be able to enjoy the happy hours as last year from the large interest spreads from government securities and adding to this, the Value Added Tax (VAT) from this year will see unprecedented challenges in the sector, analysts say.

Analysts noting that the VAT, an indirect form of taxation, was exempted for many companies, but, with this exemption, many companies were also spoiled, a tax analyst said.

He said companies enjoying low VAT or no VAT haven’t done anything to differentiate their products and services on user experience and productivity. “Everybody is grumbling about this, but on the other end they haven’t done anything to earn it,” an economist said. However, he noted that slapping this overnight was not a good move. “It should have been done in a transitionary manner. Imposing this tax overnight was wrong. The transitionary should have been three years, which is an international standard.”

The banking sector will see a rise in its Non-Performing loans with the VAT, banking industry analysts said. “They need a practical approach to recover the loans. There will be stresses on recoveries. It will be a challenge to maintain the industry nonperforming loan average of 13 per cent,” an industry analyst said, adding it is unclear that this 13 per cent is reflective of the bank’s exposure to the state-owned enterprises.

A businessman pointed out that some banks are even going to the extent of threatening the customers on Parate execution in a bid to recover loans and keep the NPLs low. Economists point out that banks need to take a different approach to this as they cannot be landlords acquiring lands, after executing the Parate.

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