What it is
Companies pay tax on profit. For banks in Nepal, the corporate rate is 30%.
The expense has two parts: current tax (what is owed on this year's taxable profit) and deferred tax (timing differences between accounting rules and tax rules, which can be positive or negative).
The effective rate, tax ÷ profit before tax, is usually near 30% but can drift because of deferred tax.
How it is calculated
Income tax expense = Current tax + Deferred tax (charge or credit). Effective rate = Tax expense ÷ Profit before tax.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's income tax expense for FY 2082/83 was Rs 363.71 crore on profit before tax of Rs 1,154.29 crore, an effective rate of about 31.51%.
Income tax expense, the sum of the two printed lines: current tax and deferred tax.
What good looks like
An effective rate near the statutory 30%. A much lower rate usually means a deferred tax credit that will not repeat.
Watch out
- Quarterly tax is an estimate; the audited year can differ.
- A deferred tax credit can make net profit look better than the business did.
- Tax paid as cash and tax expense are different timing.
In Nepal
Corporate income tax for banks and financial institutions in Nepal is 30% (Income Tax Act 2058). Deferred tax assets are deducted from capital under NRB's capital adequacy framework.
Questions
Deferred tax adjustments and some non-deductible or exempt items move the effective rate up or down a little.
Tax that will be paid or recovered later, because accounting profit and taxable profit count some items in different years.